Annual report 2014 - Stanbic Bank Uganda

Transcription

Annual report and financial
statements 2014
Stanbic Bank Uganda Limited
Contents
4
26
Risk review
32
Sustainability
42
Corporate governance
55
Financial statements & notes
111
2
Who we are
Our vision and values
How we create value
Our products and services
Our locations
Business review
This report is the Stanbic Bank Uganda Limited (SBUL) annual report and
includes financial and non-financial information.
Stanbic Bank Uganda Limited Annual Report and Financial
Statements for the year ended
31 December 2014
4
5
7
8
9
10
Our report
The financial results and commentary describe the results of Stanbic Bank
Uganda Limited (SBUL). SBUL is a wholly owned subsidiary of Standard
Bank Group and is incorporated in Uganda.
About Stanbic Bank Uganda Limited
10
11
14
17
20
23
25
2014 Highlights
Chairman’s report
Chief Executive’s report
Operating and financial review
Our KPIs and strategy roadmap
Business unit review
Financial definitions
26 Risk review
32 Citizenship & sustainability report
42
43
44
49
52
53
55
56
57
58
59
61
62
Board of Directors
Executive Committee
Corporate governance statement
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Report of the Independent Auditor
Income statement
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Supplementary information
111 Shareholder analysis
112Shareholder information
116Contact details
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31 December 2014
Who we are
Our vision and Values
values
A brief history of our bank
The bank was founded in Uganda as the National Bank of India in 1906. After several name changes, it became Grindlays Bank. In 1991, Standard
Bank Group (“the Group”) bought the Grindlays Bank network in Africa. The new owners renamed the Ugandan subsidiary Stanbic Bank (Uganda)
Limited.
In February 2002, The Group acquired 90% shareholding in Uganda Commercial Bank, a government-owned retail banking operation with sixtyfive branches. The Group merged their new acquisition with the existing Stanbic Bank (Uganda) Limited to form Uganda’s largest commercial bank
by assets and branch network.
Our vision
To be the leading African financial services organisation, in, for and across Africa, delivering exceptional
client experiences and superior value.
Purpose statement
In November 2007, the Government of Uganda divested its ownership in Stanbic Bank (Uganda) by listing its shares on the Uganda Securities
Exchange. The Group also floated 10% of its shareholding at the same time, reducing their ownership to 80%.
“Transforming Lives for a Better Uganda”
Our bank today
Served by
1,879
Employees
Personal and
Business Banking
& Corporate and
Investment Banking
Number of Customers
547,676
Serving our
customers
Through our main
business Units
Market Capitalisation
1,740 Billion
Shareholders
Respecting
each
other
23,126
1
8
Headquarters
Kampala, Uganda
Listed
On the Uganda
Securities Exchange
(USE) on the 25th of
January 2007
7
Constantly
raising
the bar
Growing our
people
2
Our
values
6
Living the highest
levels of integrity
Working in
teams
3
4
5
Being
proactive
Delivering to our
shareholders
Why bank with us
We are in all corners of Uganda, providing the best financing solutions through our un-beatable range of innovative products and services delivered
by a cadre of competent and vibrant staff using best in class platforms and processes.
For more information about our products and services/locations please
see pages 8 and 9 respectively or visit our website at www.stanbic.co.ug
You can also follow Stanbic Bank Uganda Limited on Twitter@Stanbic or
visit our facebook page at UG Facebook /StanbicUG
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31 December 2014
Our success and growth over the long term is built on making a difference in the communities in which
we operate. We are committed to moving Uganda forward.
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31 December 2014
How we create value
We deploy and maintain the integrity of
banking infrastructure
1. We allocate capital to Support Economic Growth
(See product details on the next page)
2. We provide access to Financial Services (See
details on the next page)
Personal & Business
Banking
Corporate
Investment Banking
Our Enabling
Functions
Finance
Measuring and managing financial
Performance as well as managing the Bank’s
capital and liquidity, including ensuring we
meet regulatory requirements and have
sufficient capacity to absorb losses.
Human Resources
Acquiring, developing and retaining
Talent.
Our Customers
Our Customers
Individuals
Global Corporates
Personal customers
Large multinational corporations
Executive Banking customers
Local and regional Corporates
Private Banking customers
Corporations that operate mainly in
the Ugandan market
Businesses
Small and Medium•sized
Enterprises (SMEs)
Financial Institutions and
Development Organisations
Banks,NGOs, financial and other
institutions
Larger commercial entities
Public Sector
Commodity traders, producers and
processors
Government, related departments
and Agencies
Technology and Operations
Providing the infrastructure and
Support for the Bank to effectively
and efficiently carry out its activities.
Risk
Upholding the overall integrity of the Bank’s
risk/return decisions;ensuring that risks are
assessed and controlled in accordance with
the Bank’s standards and risk appetite.
Compliance
Ensuring the bank’s activities and
conduct comply with legal and regulatory
requirements.
Credit
Managing the risk profile of the bank’s
lending potfolio through out it’s life cycle
Legal
Maintaining a comprehensive legal risk
management system.
Audit
Independently provides reasonable
assurance to the Board Audit Committee
that the risk, control and governance
processes are adequate and effective.
Infrastructure development continues to be at
the heart of Uganda’s growth story and it is one
of the most important drivers that will “Transform
lives for a better Uganda”. At Stanbic Bank
Uganda Limited we are proud to be part of this
growth story, providing financing and the whole
spectrum of financial services to make it happen.
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31 December 2014
7
31 December 2014
Our products & Services
Our Locations
Stanbic Bank Uganda
Products and Services
Personal and
Business Banking (PBB):
Corporate and
Investment Banking (CIB):
Transactional
 Personal and Business TransactPlus
(local and foreign currency)
 Personal and Business Current Accounts
 Executive Banking
 Private Banking
Transactional Products and Services
 Trade Finance
- Letters of Credit
- Bid Guarantees
- Performance Guarantees
- Advance Payment Guarantees
- Avalisation
- Import/Export Loans
- Invoice Discounting
- Bills for Collection
 Cash Management
- Cash in Transit
- Collect Plus (Courier)
- Electronic Banking
- Bill Payments
- Liquidity Management
- Payments and Receivables Solutions
 Investor Services
- Custody
- Fiscal Agency
- Facility Agency
Savings and Investments
 Personal and Business PureSave
 ContractSave
 Bonus Investment
 Personal and Business
– Fixed Deposit Account
Lending (Personal)
 Salary Loan
 Fixed Term Loan
 Revolving Term Loan
 Revolving Line of Credit
 Re-finance Home Loans
 Building Loan
 Equity Release Loan
 Vehicle and Asset Finance
Lending (Business)
 Overdraft
 Tax Loan
 Agriculture Loan
 Business Term Loan
 Property Finance
 Vehicle and Asset Finance
Central Region:
Corporate
Garden
City, Metro
Branch, Nakivubo,
Industrial Area,
Central Region: Corporate
(Crested
Towers),(Crested
GardenTowers),
City, IPS,
City Branch,
Nakivubo,
Kikuubo, Industrial
Area,Katwe,
William
Street,
Kikuubo,Nakasero,
Kawempe,
Entebbe
Main,
Makerere,
Wandegeya,
Lugogo
Mall, Forest
Katwe, William Street, Nagatule Plaza-Kikuubo, Shoppers Plaza, Magoba Plaza, Nakasero, Kawempe, Entebbe Main,
Mall,
Nakawa,
Kyambogo,
Kireka,
Mukono,
Kagadi,
Kayunga,
Luwero,
Wobulenzi,
Mubende,
Kiboga,
Mityana,
Makerere, Wandegeya, Lugogo Mall, Forest Mall, Nakawa, Kyambogo, Kireka, Mukono, Kagadi, Kayunga, Luwero,
Mpigi,
Masaka,
Kyotera, Kalangala,
Lyantonde,
Nakasero,
Ntinda
and Nateete.
Wobulenzi, Mubende, Kiboga, Mityana, Mpigi, Masaka,
Kyotera,
Kalangala,
Lyantonde,
Nakasero,
Ntinda and
Nateete.
Eastern Region: Lugazi, Kakira, Jinja, Mayuge, Kamuli, Iganga, Pallisa, Busia, Mbale, Sironko, Tororo, Kumi,
Eastern Region: Lugazi, Kakira, Jinja, Mayuge, Kamuli, Iganga, Pallisa, Busia, Mbale, Sironko, Tororo, Kumi, Kaabong,
Kaabong, Soroti and Kapchworwa.
Soroti and Kapchworwa.
Northern Region: Pader, Gulu, Kitgum, Nebbi, Dokolo, Adjumani, Koboko, Yumbe, Arua, Katakwi, Moyo,
Northern Region: Pader, Gulu, Kitgum, Nebbi, Dokolo, Adjumani, Koboko, Yumbe, Arua, Katakwi, Moyo, Pakwach,
Pakwach, Apac, Kotido, Moroto and Abim.
Apac, Kotido, Moroto and Abim.
Western Region: Mbarara, Ibanda, Kabwohe, Bushenyi, Ishaka, Ntungamo, Rukungiri, Kabale, Kisoro, Kihihi,
Western Region: Mbarara, Ibanda, Kabwohe, Bushenyi, Ishaka, Ntungamo, Rukungiri, Kabale, Kisoro, Kihihi, Bwera,
Bwera, Bundibugyo, Bwamiramira, Kasese, Fort Portal, Kyenjojo, Masindi, Hoima, Kinyara (Agency), Buliisa
Bundibugyo, Bwamiramira, Kasese, Fort Portal, Kyenjojo, Masindi, Hoima, Kinyara (Agency), Buliisa and Kigumba.
and Kigumba.
Amuru
Investment Banking (IB)
 Debt Capital Markets
 Advisory
 Asset Finance
 Syndications
Buliisa
Bukedea
Busolwe
Nakasongola
Kibale
International Development Group
 Priority Suite
Global Markets
 Spot Foreign Exchange
 Forward Contract in Foreign Exchange
 Foreign Currency Options
 Cross Currency Swaps
 Interest Rate Swaps
 Money Market Products
- Fixed Deposits and Treasury Bill
 Fixed Income
- Treasury Bonds
Ntoroko
Kabarole
Wakiso
Kiruhura
u
ung
Kan
Trade Finance
 Letters of Credit
 Bid Guarantees
 Performance Guarantees
 Advance Payment Guarantees
 Import/Export Loans
 Invoice Discounting
World
class
banking,
World
class
banking,
nownow
in all
corners
of of
Uganda.
in all
corners
Uganda.
Customer Service Points
(CSPs)
Project Finance
Services:
 Internet Banking  new Business Online (nBOL)  Point Of Sale (POS)  AutoBank (ATM)
 Debit and Credit Cards (VISA enabled)  PayPlus - payment services solution (water, electricity, pay tv,
pension)  Mobile Banking (WAP)
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31 December 2014
Branches
Toll free:
0414 340 788 or 0417 154 910
0800 150150 or 0800 250250
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31 December 2014
Business review
Business review
2014 Highlights
Our income lines were resilient, with strong recovery
in retail lending activity, supported by Advisory
opportunities in our Investment banking business
Dear shareholders,
Return on Equity
30.3%
Efficiency initiatives in our operations as well as
improvements in the credit risk management process
began to pay dividends as our operating costs and loan
impairments remained well under control
Return on average shareholders’ equity increased from 25.2%
principally reflecting an increase in profitability without corresponding
increase in equity holding.
Dividends per share
Chairman’s
statement
Ushs 1.66
Full year dividend up from Ushs 1.56 in 2013.
Profit before tax
Gross new lending
Ushs 181.3bn
Up 34.5% due to strong income growth that came in 7% ahead of cost
growth as well as improvements in credit quality of our loan book that
saw impairments for bad loans decline year on year.
Tier I capital
We expect to conclude further changes in the leadership of our
business units and other key executive management roles in the first
half of 2015.
Ushs 1,267bn
We provided Ushs 1,267bn of funding for eligible new lending to
Ugandan households and businesses in 2014.
Citizenship
17.4%
Japheth KatTo
Ushs 0.8bn
Up from 16.7% in December 2013 principally due to internal equity
growth driven by strong profitability and a stable dividend pay-out
ratio.
In 2014, we invested Ushs 0.8bn in direct interventions to improve
the social and economic well-being of the communities in which we
operate.
2014
Income statement (UShs’ 000)
Profit before tax
181,287,926
134,810,761
Profit after tax
135,079,382
101,851,527
2013 Financial position (UShs’ 000)
Total assets
3,507,762,015
3,241,598,040
Loans and advances to customers
1,618,379,655
1,415,040,925
Shareholders’ equity
486,969,533
405,308,497
Customer deposits
2,132,356,040
1,787,577,713
Financial performance (%)
Return on average equity
30.3 25.2
Return on average assets
4.0 3.1
Cost to income ratio
53.2 57.4
Loans to deposit ratio
75.9 79.2
Share statistics per share (UShs)
Earnings per share - basic and diluted
2.64 1.99
1.66 1.56
2,184,296,134 1,960,768,303
Tier 1 capital to risk weighted assets (%)
17.4 16.7
Total capital to risk weighted assets (%)
19.2 20.0
Proposed dividend per share
Capital adequacy
Risk weighted assets (UShs’ 000)
10
31 December 2014
I
t has been an exciting first six months for me as chairman of your
bank, highlighted by key management changes and an incredible
financial performance. I assumed office in June 2014, and we
announced our new Chief Executive in January 2015. I would like
to begin by introducing our new Chief Executive Mr. Patrick Mweheire
who assumed office in January 2015. Patrick is a person of great talent
and considerable banking experience gathered around the globe and
spanning over 16 years. Having served as executive director with the
Bank for 3 years before his appointment, we expect the transition to
be seamless.
“While 2014 has been a good year, I believe we
remain in strong shape to continue supporting
our clients and customers, and the growth
opportunities for the business remain
compelling.”
On behalf of the Board of Stanbic Bank Uganda, I would like to pay
special tribute to Mr. Philip Odera who has diligently served as Chief
Executive of the Bank for over 7 years. His transformative leadership,
passion, commitment and dedication have seen us lead on many fronts.
As part of his own personal and professional growth, Philip will be
taking on another assignment within the Standard Bank Group.
During the year we began a midterm review of our 2012 – 2016
strategy. The review concluded that the broad strategy was right
for both our bank and for the prevailing environment. We made a
few refinements to align our actions to the more resilient drivers of
growth. I look forward to the challenge of working with the board and
management team to further strengthen focus and execution and to
sustain the growth momentum we have witnessed in 2014. The Chief
executive’s review will cover the details of the strategy refinement and
progress on strategy delivery in more detail.
Performance in 2014
The business environment during 2014 was mixed. The economy
continued on a recovery path while private sector growth was below
expectation. Focus on identified business priorities, a stronger risk
management environment and our cost management agenda delivered
the 2014 result for us. Profit after tax rebounded from 2013 to record
a 33% growth from Ushs 101.9bn to Ushs 135.1bn in 2014. The Chief
executive’s review will cover financial performance in more detail.
The Board of Directors has recommended the payment of a first and
final dividend of Ushs 1.66 per share for your approval. The dividend
payment constitutes a 62.9% pay out ratio which is above the industry
average.
The retained earnings will enable the Bank to build a sufficient
capital buffer as the industry moves to implement the revised capital
requirements that are awaiting gazetting of the relevant statutory
instrument. The proposed dividend will also allow the Bank to continue
pursuing balance sheet growth by providing sufficient headroom to
grow risk weighted assets
I will now share highlights of some of the factors that impacted our
business in 2014.
Macro environment
On monetary policy, we were delighted to see Bank of Uganda making
integrated efforts towards improvement in the management of the
economy in 2014. Robust statements following bi•monthly Monetary
Policy Committee meetings spelt clearly their focus and priorities and
they allowed market players an opportunity to opine on the direction
of any rate changes.
11
31 December 2014
Business review
Business review
Chairman’s report (Continued)
Chairman’s report (Continued)
2015 outlook
While 2014 has been a good year, I believe we remain in strong shape
to continue supporting our clients and customers, and the growth
opportunities for the business remain compelling
GDP growth projections for 2014/2015 are at 6% - 6.5%, up from
4.7% in 2013/2014 supported by foreign direct investment flows,
infrastructure investment and improved private sector performance. Sectors
exhibiting growth in 2014 included public infrastructure, manufacturing,
electricity, water supply activities and trade.
We are very optimistic that the business will continue to grow, despite
the challenges that we may encounter in our business environment as
a result of activity ahead of the 2016 general election. We are putting
in place a sound strategic agenda for our Bank to drive future growth.
We will continue to use our well capitalised, highly liquid and diverse
balance sheet to drive value for our shareholders.
Your Board and the executive team led by Patrick are encouraged by
what was accomplished in 2014. We have set clear targets for 2015
and are focused and determined to sustain the momentum.
To our management team and staff, you have done an incredible job in
2014. I thank you for your superior performance and call upon you to
continue with the same degree of dedication. That is the only way, the
Bank can continue to produce such great results and consolidate our
position in the banking industry in Uganda.
I would like to salute Stanbic Uganda shareholders, customers,
employees and partners, for their unwavering support and dedication
to the Bank, and for their confidence in the Board and Management
over the years. I laud the Government and Bank of Uganda for their
invaluable support and contribution to the development of a sound
banking sector
My colleagues on the Board and I will continue to provide the necessary
oversight, guidance and support to management to propel us to achieve
our medium and long•term objectives.
Appreciation
The Central Bank Rate which opened the year at 11.5% was revised
at half year to 11.0% until end year as government sought to signal
prevailing stability and stimulate private sector credit growth.
GDP growth projections for 2014/2015 are at 6%-6.5%, up from
4.7% in 2013/2014 supported by foreign direct investment flows,
infrastructure investment and improved private sector performance.
Sectors exhibiting growth in 2014 included public infrastructure,
manufacturing, electricity, water supply activities and trade. The Bank
has aligned its strategic agenda to pursue opportunities in these and
other growing sectors of the economy.
Foreign exchange rate stability through the year was sustained by
increased foreign investor participation in the government securities. A
reversal in this trend began in the last quarter is expected to impact the
2015 inflation outlook and consequent monetary policy if it continues.
Operating environment
On a general level, the Uganda Banking sector recorded a recovery
from the single digit growth witnessed in 2013. Total industry funding
was spurred by deposits while industry assets were driven by recovery
in lending activity. This growth according to the industry regulator, Bank
of Uganda, was accompanied by an improvement in overall credit quality
of the loan book. This improvement in loan book quality was observed
in both the local currency and the foreign currency denominated books.
Non performing loan concerns however persisted in the personal and
household loan sector.
Attesting to an overall industry improvement, even with lending rates
falling marginally, industry profits grew by 17% to Ushs 485 billion in
2014, having recorded a 25% decline to Ushs 414 billion in 2013.
Regulatory environment
The policy instrument increasing capital requirements for all banks by
2.5% and an additional buffer of up to 2.5% for those designated as
systemically important domestic banks was finalised during the year
with the stakeholder consultation phase closing in January 2014. The
instrument now awaits gazetting in order to take effect.
Increased capital requirements will mean we have to be more focused
on getting the best out of our existing businesses.
A summary of new tax proposals adopted that will impact the banking
industry is presented below;
1. Elimination of tax exemption on Interest Income on Agricultural
Loans (this had been introduced in 2005)
2. Introduction of a 10% excise duty on bank charges and money
transfer fees
I would like to thank my predecessor Mr. Hannington Karuhanga who
served with distinction on the board for almost 14 years for the solid
foundation he together with the rest of the board helped to put in place
for sustained future growth. I would also take this opportunity to salute
Mr Patrick Masambu for 5 years of outstanding service to the bank. Mr
Masambu resigned from the board effective 1 January 2015. Please
join me in wishing Hannington and Patrick the very best in their future
endeavours
______________________________
Japheth Katto
Chairman
3. Elimination of V.A.T (18%) exemption on computer software –
Payments with respect to finacle (our core banking system) and
other software will be impacted and these are substantial sums
involved.
We estimate that the tax changes above that took effect in June
2014 will increase our effective tax rate by one percentage point. We
continue to explore avenues to further optimise our tax rate to mitigate
the impact of these changes
Corporate citizenship
With regard to our corporate citizenship agenda, the year under review
continued to reflect well on our efforts aimed at ”Transforming lives”.
We remained alive to the fact that good stewardship demands that we
take into account the needs of all our stakeholders and make decisions,
which, in the long term, are positive for our customers and clients,
shareholders, colleagues and the communities in which we operate.
I commend my colleagues, members of the management team and all
our staff who in their individual capacities continue to make tremendous
contributions to their communities and I want to take this opportunity
to pay tribute to them.
Stanbic Bank’s community investment agenda continues to focus on
the areas of education, entrepreneurial skills development, health
and environment and our approach is usually to work with community
organisations.
Importantly in all our community work, we increasingly look to involve
our staff to reinforce our links with the communities we serve.
In 2014, our investment amounted to Ushs 0.8 billion, through 12
local initiatives which directly and indirectly transformed the lives of
over 20,000 underprivileged people across the country.
You can read more about this in our Citizenship and Sustainability
report on page 32.
12
31 December 2014
13
31 December 2014
Business review
Business review
Chief Executive’s report (Continued)
To our shareholders
Chief Executive’s
statement
2014 was a great year, thanks to the dedication of our approximately
1,900 team members working together towards our shared vision. To
transform lives by satisfying all our customers’ financial needs.
In 2014 we generated record earnings – in fact we were the most
profitable bank in Uganda. We generated a Profit After Tax (“PAT”)
of UGX 135 Billion, achieving a strong 33% year-on year growth in a
relatively challenging market environment.
Our accomplishments in 2014 were a direct result of:
• Having the right people; an effective team that worked together
to fulfill our diverse customer needs
• Doing business in the right segments; both from an institutional
and retail segment
• Operating a diversified business model; businesses diversified
by size, client mix, transactional vs lending that can perform well
across a variety of economic and interest rate environments
Patrick MWEHEIRE
From the Bank’s perspective, we continued to
deliver on the key initiatives that we had set for
ourselves at the beginning of 2014. The key
priorities were putting our customers first,
improving efficiency and connecting with our
communities and stakeholders.
From a macroeconomic perspective, we witnessed more robust GDP
growth which improved from 4.7% in 2014 to the 6.5% area in 2014.
This was achieved in a more benign inflation environment where inflation
declined steadily from 6.9% at the beginning of the year to a record low
of 1.8% in December 2014. This had a positive impact on the banking
sector where private sector credit growth showed resilience, growing
at over 15% in 2014. This was buttressed by a strong recovery in asset
quality with the non-performing loan ratio across the industry dropping
from 5.6% to 4.0% in 2014 despite the strong growth in assets. Banking
industry profitability also improved, growing at 17% year-on year.
Progress on our Key priorities
From the Bank’s perspective, we continued to deliver on the key
initiatives that we had set for ourselves at the beginning of 2014. The
key priorities were putting our customers first, improving efficiency and
connecting with our communities and stakeholders.
Putting our customers first
Banking is a relationship business: We start with what our customers
need and not what we want to provide to them. In 2014, we
deliberately went out and listened to our customers and recognized
that we were falling short of their requirements from a service point of
view. Our customer experience had deteriorated and we needed to do
something about it. A thorough review was undertaken of our customer
service requirements and a number of urgently needed improvements
were identified. A new head of service at EXCO level was recruited to
champion overall improvement in service levels across the bank. We
also rolled out internal service metrics at a departmental level to track
and measure internal dependencies that were having an impact on our
customer experience. This holistic approach to service has allowed us to
identify gaps and hold all employees and departments accountable to
improving the customer experience.
We are happy to note that a number of gains have already been made
and service should soon become a key differentiator for us in the market
in 2015.
Improving efficiency
In order for us to retain our leadership position in the banking industry
we must constantly innovate and improve our productivity. In 2014
we embarked on a journey to simplify and streamline our operations
so we could better serve and respond to our customers’ requirements.
It included an exhaustive review and reorganization of our enabling
functions particularly the information technology and operations
functions. We also continued to invest and upgrade our core banking
platform to address interface gaps with other peripheral bank systems
14
31 December 2014
Profit after Tax
Ugx 135 billion
Total Assets
Ugx 3.5 trillion
2013: Ugx 101.8 billion
2013: 3.2 trillion
and broaden functionality. We are convinced that all these interventions
will ultimately improve our efficiency and ability to more cost effectively
serve our customers. They have also improved the control environment
and lowered the risk levels across the bank.
Connecting with our communities and stakeholders
Our reputation will continue to be one of our most important attributes
to safeguard and this is heavily influenced by what we do and how we
connect with our communities and stakeholders. Stanbic continues to
actively support the revitalization and growth of the economy including
the agriculture sector which employs the largest number of Ugandans.
We continue to play a leadership role in improving financial inclusion
across the country and are involved in a number of initiatives to provide
financial services to the masses.
Our social investment strategy will continue to partner with our
communities and stakeholders to make high impact interventions that
will transform lives. In 2014, we spent approximately UGX 800 million
in several education and health oriented programs aimed at improving
the livelihoods of over 54,000 people across the country. We also
continue to reduce the environmental impact of our operations,
increase our energy efficiency and decrease waste. You can read
more about our sustainability agenda and the detail of activities in our
citizenship and sustainability report on page 32.
2014 Performance Review
Our 2014 results recorded a significant recovery from 2013, we
registered an after tax profit of UGX 135.1 billion, an increase of UGX
33.2 billion or a 33% year-on-year growth from the results of the
preceding year of UGX 101.8billion.
The key performance drivers in 2014, compared to 2013 were as
follows;
• Total income grew by UGX 47.2 billion (10.5% year on year).
The biggest contribution to this growth came from Net Interest
Income which recorded a growth of 13%, equivalent to UGX
32.5 billion on account of recovery in loan growth especially
in the construction, trade and household sectors. We also took
advantage of the very liquid market during the year to reduce our
interest expense by shedding off expensive funding.
•
Operating costs remained under tight control with real expenditure
remaining flat year on year (inflationary growth of 3%, equivalent
to (UGX 8.1 billion). We continue to drive efficiency through
investment in technology and improved productivity.
•
Asset quality also improved with our credit loss ratio falling to
2.3% from 3.1% in the prior year. Credit provisions dropped to
UGX 37 billion from UGX 45 billion in 2013.
•
Our cost efficiency ratio improved from 57.4% to 53.2% as a
result of a rebound in our revenue lines and a tightly managed
cost base.
•
Return on equity was 30.3%, up from 25.2% in 2013, reflecting
the improvement in profitability of the business in 2014
The above results were achieved in a highly competitive market place
within a sluggish macro-economic backdrop particularly in the first
half of 2014. You can find further details on the 2014 operating
environment and the financial performance in the operating and
financial review section of this report on page 17.
Capital and Liquidity base
During 2014, our core capital ratio remained strong at 17.4% against a
regulatory minimum ratio of 8% while the total capital ratio was 19.2%
against a regulatory minimum of 12%. Our liquid asset holding ratio
was also very strong at 56.1% against a regulatory minimum of 20%.
This strong capital position provides the bank with a significant buffer
to meet both regulatory requirements and customers’ needs for the
foreseeable future.
Risk Management and Controls
We have clear risk management objectives and an established strategy
to deliver them through core risk management processes. This enables
us to fully understand and minimize the impact of uncertainty in the
business. Responsibility for risk management is cascaded through
all levels of the bank, from the Board and the Executive Committee
down through the organization to each business manager and risk
specialist. This ensures that risk/return decisions are taken at the most
appropriate level and as close as possible to the business. Independent
risk teams are in place to support close working relationships with the
business teams taking on the risk. These risk teams ultimately report to
the Head of Risk.
During the year, we instituted an independent compliance function
which is supported by a robust compliance framework and a range
of policies addressing various compliance risks such as Anti Money
Laundering, Know Your Customer (KYC), Bribery and Corruption, as
well as Consumer Protection. We also maintained a strong relationship
with our regulators both local and international and remain committed
to conducting our business in a fair, transparent and compliant
manner. You can read more about our risk profile and approach to risk
management in our risk review on page 26.
2015 Priorities
Our priorities in 2015 will focus on three relatively simple but critical
objectives;
• Building employee capability across all levels;
• Getting Service right; and
• Reducing our Cost to Serve
We will continue to invest in our people’s capability to lead and
contribute to their fullest potential. Capability building is more than just
training to complete day-to-day tasks; we will be focusing on a broader
set of skills that increase each employee’s value to the organization and
better position us in the market place.
15
31 December 2014
Business review
Business review
Operating and financial review
Chief Executive’s report (Continued)
We are also going to aggressively focus on service delivery and have
already made the necessary organizational changes required for
delivering our service promise and making us more customer focused
in 2015 and beyond. We are confident that service focus is the single
most important action that will give us the platform to deliver sustained
and profitable growth.
Lastly, we will drive efficiency by reducing our cost to serve. There are
a number of initiatives that we have put in place to deliver significant
productivity improvements in 2015. We will continue to digitize and
rely on other cost effective channels to serve our customers.
2015 Outlook
2014 was an outstanding year for Stanbic Uganda and we are very
pleased with our performance. 2015 is a pre-election year and will
have its challenges but we are very clear on what we have to do.
We have a solid balance sheet, a remarkable brand, loyal clients and
fantastic people to deliver our objectives.
Appreciation
I would like to thank the outgoing Chief Executive of Stanbic Bank
Uganda, Mr. Philip Odera for the contribution made towards the growth
of the bank and paving the way for me. I also wish to thank all our
stakeholders - board members, staff members, customers, communities
and shareholders- for making 2014 an outstanding year. As we look
forward, we are confident in our abilities to serve changing customer
needs and contribute to the growth of our beloved country.
______________________________
Patrick Mweheire
Chief Executive
2014 proved to be a successful year for
the bank. Growth in the core business
of the bank was strong underlined by an
improvement in transactional activity,
good growth in customer lending and
customer deposits.
The macro•economic environment was generally stable through the
year. With inflation trending lower, the Central Bank Rate (CBR) was
held stable during the year. However, signs of stress in the economy
began to occur in the last quarter as the Shilling began to depreciate.
This situation showed signs of negatively impacting interest rates on
government securities.
No significant regulatory changes were recorded during the year. Nevertheless, a number of Basel III changes are expected to be adopted in
the near future. The bank remains cognizant of these changes and is
adequately prepared for eventual introduction.
The Bank continued to witness stability in the operations of its core
banking system as new versions were successfully introduced. This has
improved the ratio of straight through processes in our operations. This
has afforded the Bank the opportunity to start introducing additional
digital payment products to customers. We expect an improvement
in the contribution to income of these products in subsequent years.
Supported by the stable environment noted above, profits grew strongly during the year in comparison with the position reported in 2013.
Revenue growth was facilitated by good margins while cost increases
were kept within reasonable limits. This positively impacted earnings
with Profits after tax experiencing a 33% growth over prior year from
UGX 101bn in 2013 to UGX 135bn in 2014.
16
31 December 2014
17
31 December 2014
Business review
Business review
Operating and financial review (Continued)
Highlights underpinning our results for the year include
Improvement in asset quality improving interest income and driving down credit impairments
Operating and financial review (Continued)
the year focused on improving the whole credit underwriting process.
A number of revisions were made in the credit evaluation standards on
various products. As a result we continued to see a reduction in credit
loss rates which end at 2.3% as against 3.1% recorded in prior year.
5year prefomamance review
Income statement (UShs’m)
2014
2013
2012
2011
2010
Profit before income tax
181,288
134,811
177,701
163,816
88,772
Profit after tax
135,079
101,852
130,734
121,702
72,082
Operating costs kept within reasonable limits
Inflation
Improving transactional activity improves fee and commission income results
Inflation represents the general increases in prices for goods and services in the economy. An increase in inflation would generally impact
the cost of operations of the Bank.
Financial position (UShs’m)
486,970
405,308
401,039
294,983
230,087
During the year, inflation trended lower with average inflation falling
from 6.9% in January and ended the year at 1.8%. This is much lower
than the target rate of 5% set by the Bank of Uganda.
Total assets
3,507,762
3,241,598
3,098,593
2,713,235
2,400,148
1,618,380
1,415,041
1,460,278
1,531,859
1,204,690
Property and equipment
47,705
39,790
40,946
35,344
43,741
Below is an analysis of the major revenue lines generated by Bank and
the costs incurred in the process:
Customer deposits
Returns and ratios
2,132,356
1,787,578
2,099,180
1,902,949
1,840,918
Return on average equity
30.3%
25.2%
37.6%
46.4%
32.7%
Financial Performance Review
The major assets and liabilities held by the bank on its statement of
financial position and the drivers behind the variations year on year are
reviewed as follows:
Cash and Balances with banks
These are made up mainly of the cash we hold in our network, statutory
cash reserves with Bank of Uganda, balances with other commercial
banks and repos held with the Bank of Uganda for short periods awaiting suitable investment possibilities. Growth in customer deposits as
well as maturing financial investments are the main reason for the year
on year movements. Rates on repos remained strong as the Central
Bank Rate was kept stable during the year.
Investment securities
Government securities recorded a 16% decline from the previous year.
Uncertainty in interest rate outlook and good growth in the loans and
advances portfolio supported this cautious position.
Net Interest Income
Return on average assets
4.0%
3.1%
4.5%
4.8%
3.4%
Net interest income for the year increased by 13% over 2013 to UGX
280bn.This was primarily due to an increase in loans and advances to
customers and government securities. Earning asset mix recorded an
improvement with loans and advances accounting for 77% compared
to 73% in 2013. Margins on earning assets improved from 11.5% in
2103 to 13.3% in 2014.
Loan to deposit ratio
75.9%
79.2%
69.6%
80.5%
65.4%
Cost to income
Capital adequacy
53.2%
57.4%
39.8%
47.2%
67.2%
Non Interest Revenue
Non interest income grew 7.3% over the year. Fees and commission
income was up on prior year by 10% while trading revenue posted a
5.4% increase.
Credit growth in the CIB business remained tamed. With no improvement in the economic situation in South Sudan, export opportunity into
the market was weak affecting corporate demand. Loans and advances
growth was as a result weak.
The Bank continued to review pricing of various services improving
their competitiveness. While no price increases were made, a number of fee lines were scrapped for various customers such as account
management fees and services. This notwithstanding, an improvement
in customer activity helped maintain a good performance in the fee
income lines. During the year, greater emphasis has been placed on
growing transactional fees, trade and cash management fees which
better relates to transactional activity.
Customer deposits
Trading revenue
Loans and advances to customers grew strong by over UGX 200bn during the year. This was mainly in the PBB portfolio with personal lending
and property refinancing showing strong growth.
Customer deposits rebounded strongly with a year on year growth of
19.2% as against a decline of 14.8% experienced in 2013. Customer
activity improved as the Bank delivered payment and other attractive
products to grow deposits. Growth in customer deposits were mainly
led by the retail sector and in current account balances.
Impacting the general industry environment were the following factors.
Margins
This represents the profit margin between interest rate earned on
earning assets and interest rate paid on deposits and other funding.
Key drivers of this ratio are the CBR and the credit quality of assets on
the book.
The CBR was generally stable with an average decrease of 50bp when
compared to 2013. Despite the decline in rates, the bank successfully
managed to improve margins by proactively managing yields on the
investment assets portfolio and improving asset quality.
Credit loss
The credit loss ratio is the impairment charge expressed as a percentage of the average loans and advances book. It represents the loss the
Bank incurs as a result of delinquencies from customers.
With a commitment to further reduce credit loss ratios, the Bank during
18
31 December 2014
Tier 1 capital ratio
17.4%
16.7%
15.7%
11.8%
12.0%
Tier 1 + Tier 2 capital ratio
19.2%
20.0%
20.3%
15.0%
14.2%
2,184,296
1,960,768
1,914,951
2,040,885
1,552,233
Risk weighted assets (UShs’m)
Share statistics (UShs)
Closing number of shares in issue (in
millions)
51,189
51,189
51,189
10,234
5,119
Earnings per share - basic and diluted
Dividends per share - proposed and/or
paid
2.64
1.99
3.83
3.57
2.11
1.66
1.56
1.37
4.88
7.03
Other information
Number of employees
1,879
1,903
1,859
1,721
1,612
With the stability in the macro economic environment, margins on foreign exchange trades shrank significantly negatively impacting related
income. While trading revenue grew by 5.4% over prior year, this was
mainly due to the performance of the trading desk while both money
market desk and fixed income desk continued to perform well.
Credit Impairment charges
Credit impairment charges reduced sharply during the year by 16.7%.
Efforts to clean up the loans and advances book and to improve the
underwriting process are proving successful with the consistent trend
in impairment reduction charges over the last two years. During the
year, the clean up of the Business Banking portfolio continued with a
number of downgrades. Loss of key markets in South Sudan continued
to impact its performance.
Operating Expenses
Operating costs of UGX 263bn was only 3% higher than 2013.
While staff costs increased by 14% on account of new senior leadership
recruitments, other operating costs showed a strong reduction of 5%
as we continued to implement our long term cost management agenda.
We continue to implement various cost management solutions to
ensure that investments are substantially covered by savings generated
in other operating activities.
19
31 December 2014
Business review
Business review
Delivering our KPIs
Our Strategy Roadmap
Earnings per share (Ushs)
1.
Deliver consistently superior
perfomamnce through
disciplined growth.
3.6
3.8
46.4
2.6
30.3
25.2
Earnings
share13
(Ushs)14
10 11per 12
Objective
3.8
To deliver3.6
double digit earings per share (EPS)
growth.
2.6
Tier I Capital
Adequacy ratio
Result
(%)
2.1 delivered a resilient
2014
performance in
2.0
rather slow activity environment.
17.4
15.7 16.7
12.0 11.8
10
11
10
11
12
12
13
13
14
14
Tier I Capital Adequacy ratio (%)
2.
Mantain balance sheet strength
to stay a head of regulatory
requirements and to support
our aspirations.
32.7
2.0
0 - 3 Years
Generate target returns
10 on11
12 13
Return
Average
Equity14(%)
To deliver
46.4consistent returns (RoE) about
50% above our Cost of Equity (CoE),
37.6 the long term objective
balanced against
of32.7
having strong yet efficient capital
30.3 (%)
Total Capital Adequacy ratio
levels.
25.2
37,6
Result 20.3 20.0
19.2
A recovery in profitability
in 2014 drove
the 15.0
RoE improvement. Profits grew
14.2
30% while equity grew 20% driven by
10 11
12 13 14
retained
earnings.
10
11
12
13
14
Total Capital Adequacy ratio (%)
37,6
10
11
20.3
14.2
12
13
14
10
20.0
19.2
15.0
11
12
13
14
Objective
To maintain a strong capital base to comply with regulatory requiremets and to support our
business growth ambitions including sufficient capacity to absorb potential losses
Result Result Good levels of organic equity generation
We redeemed Tier II bonds with less than
continue to support our Tier I capital
a year to maturity worth Ushs 30 Billion
growth, Keeing us above the minimum
during the year as their capital worth had
regulatory requirement of 8% and
fallen below 20%. We will look to issue
positioning us well for future regulatory
more Tier II capital at an opportune time
changes as the environment continues
in the future to optimise our capital mix.
to evolve.
20
31 December 2014
Invest in people, improve customer service & reduce cost
0 - 4 Years
Sustain Momentum
Sustain business growth momentum and consistently deliver RoE above CoE
Objective
17.4
15.7 16.7
12.0 11.8
Strengthen I.T capability, Improve service (streamline
processing)And start a focused people development agenda
0 - 18 Months
Get the foundations right
37.6
2.1
Where we are now
Return on Average Equity (%)
2014
2015
2016
2017
How we implement our Strategy
Our values come first
Driving profitability
We have consistent operating principles that are not
only fundamental to but determine the way we do
business. These also help us to detect, deter and
protect against financial crime.
Our strategic priorities are designed to ensure we
have a sustainable business for the long term.
Our business and operating
model
Governance reinforces our
values
The conditions for creating value and generating
profits are reflected in our business and operating
model, which determines how our business units,
our infrastructure and support functions interact.
Implementing Global Standards affects how we
govern the bank, the nature of our core business
and the performance, recognition and behaviours
of all our people in managing high quality customer
relationships. It starts with embedding our Standard
Bank group values in everything we do.
Profit underpins long-term business sustainability
and growing our profit is an integral part of our
strategy.
21
31 December 2014
Business review
> Corporate and Investment Banking
Business unit review
WHEN IT COMES TO
FINANCIAL MARKETS,
WE DEMONSTRATE EXCELLENCE.
Best Primary Dealer 4 years in a row.
Stanbic Bank Uganda Limited: A financial institution regulated by Bank of Uganda License Number A1. 013
CIB Review
The Management and staff of Stanbic Bank
Uganda thank the Bank of Uganda, our
customers, Interbank-counter parties and all
other stakeholders for yet another win.
Stanbic Bank received the coveted Primary
Dealer of the Year award at a ceremony
hosted
by Bank of Uganda.
31 December 2014
22www.stanbicbank.co.ug
The corporate and Investment banking market place
continued to feel the impact of slow activity in the
private sector. The chairman’s report has details
on macro-economic developments during 2014.
Credit growth in the CIB segment remained muted;
a factor driven by low consumer demand and legacy
impairments. Amidst the developments, the CIB
business managed to post record results hinged on its
ability to reinvent and reposition itself in the changing
market. The main challenge during the year was on the
foreign currency part of our business. The demand for
FCY credit continued to grow however the ability to
raise FCY liquidity was subdued.
Strategy:
The CIB strategy is aligned to the Group CIB vision and is broadly
inclined on the intent to be the leading corporate and investment
banking business in Uganda. Significant progress has been made on
the strategic objectives for delivering our vision demonstrated by the
robust financial performance in the last 2-3 years and specifically in
2014 where growth in profitability was in excess of 25%. This depicts
the renewed confidence that clients have in our business acumen.
Stanbic CIB controls well over 25% of the market share and continues
to grow from strength to strength. Our role in the trade sector has
been intensified and has culminated in a 5% growth in market share in
2014. We have spearheaded the developments in the Capital Markets
space with new to market transactions and were once again awarded
the accolade of the Best Investment Bank in Uganda by EMEA Finance.
We continue to deepen our relationship with Government and align our
internal processes to improve service delivery and ultimately customer
experience. We have committed heavy investments in the areas
of service and system functionality and continue to work with other
external service providers in bid to innovate and simplify ways of doing
business.
Client engagement:
Our Client engagement model speaks to deepening client relationships
through delivering a comprehensive and quality service. We continue to
strive to improve our service culture through technological investments,
partnerships and people developments. On a regular basis, we sanction
tailored customer service surveys to acquire our clients’ feedback which
we then act upon to improve service delivery. This feedback is specific
and we use it to gauge our staff capabilities and development needs.
The CIB business was able to post a positive Net promoter score in
2014 coming from a negative position in the previous year and further
to that close to 50% of our clients perceive us as the top CIB bank in
Uganda as per a Group research report on CIB conducted in May 2014.
In this area as well, we leverage the Group’s capabilities to embed a
client model that is International and renown. Through the Group’s
connections and expertise, we have been able to open our doors to new
segments and drive growth in various areas. In 2014 we were able to
finance new deals in excess $70m as a result of the strong partnerships
we have established.
Looking ahead:
We continue to make significant strides across various aspects of
our business to ensure that we are the right business partner for our
clients. We have transformed our client operating model to ensure
that we are client centric and have committed heavy investments in
our service structure to bring to life our client promises. We are also
positioning ourselves to take a central role in the build up to the Oil and
Gas activities expected to take off by 2018. The Oil and Gas sector is
expected to contribute over 30% of the country’s GDP by 2030 and
we are committed to remaining relevant to our clients along the way.
We have aligned our internal processes and gone ahead to spearhead
key discussions in the market with the relevant stakeholders. We have
also ensured that the support elements to this build up are an integral
part of the Bank’s strategic focus and are complemented by the overall
Standard Bank Group strategic focus areas. We are therefore confident
that we have the necessary Group support in regard to Capital, expertise
and other credit related elements to progress our local agenda. We
envisage ourselves being one of the dominant players in this market
and continue to push forward on delivering on our client promises.
23
31 December 2014
Business review
Business review
Financial definitions
Business unit review (Continued)
PBB Review
At industry level, Personal and business banking experienced
recovery from the flat balance sheet growth experienced in
2013 to decent growth in 2014. Recovery was mainly driven
by individual lending to the salaried employees, the trade
sector and commercial mortgages.
Loan book quality though showing an improvement year on
year, continued to be a concern with NPL ratios remaining
rather high.
Supported by overall industry recovery, we recorded good
balance sheet and income statement performance in 2014.
Customer advances grew by 30% mainly on account of loan
demand from salaried individuals and the trade sector in
local currency as well as commercial mortgages in foreign
currency
Customer developments;
Overall, PBB Customer Numbers in 2014 grew by 6% (34,092) from
540,200 in 2013 to 574,292 in 2014 with Personal Markets (PM)
numbers growing by 40,997 largely driven by the growth in the salaried
segment which we code name Karibu.
As part of the continuous process of customer lifecycle management,
we introduced in the second half of 2014 the student account for
students in University, College and other Tertiary institutions
Channels and service update;
Branches
• We have the largest footprint and continue to increase our footprint
by opening branches in strategic locations to ensure we are
everywhere our customers need us to be. During the year ended,
we opened 4 new branches that is at Village Mall in Bugolobi,
Acacia Mall at Kisementi, Aponye Mall and in Kabalagala
• We also rationalized our branch network by merging or relocating
branches to achieve two things; first that we are not just everywhere
but in the right places. Second to optimize the cost of our net-work
to levels our customers can afford.
ATMs
• We have the the largest share of the ATM network at 22% of the
total ATMs in the county with our network spread in all parts of the
country. We continue to expand our network to strategic locations
and during the year, we commissioned the first ATM in the entire
Kalangala district enabling 24 hour banking service to the islanders
and visitors that hold VISA and master card enabled cards.
• We enhanced our ATM security and are now EMV compliant. We
also installed CCTV cameras at all our ATMs. These initiatives are
to curb the fraud risk that comes with such installations and ensure
safety of our customer accounts
.
24
31 December 2014
• We continue to deploy value added services and during the year we
deployed the first ever intelligent depository that will now enable
customers make real time deposits onto their accounts using the
ATMs. These have been deployed at Acacia Mall and Metro branch
and will continue to be deployed in strategic locations to improve
our customers’ service experience
Other Digital Channels
• In line with our strategy to deploy digital channel banking solutions
i.e. USSD, WAP, Internet banking, SMS notifications, we undertook
a campaign to increase number of customers using digital channels.
We will continue with the drive to migrate our customers to the
digital channels and roll out new functionality to improve the
service experience.
2015 and beyond strategy
CAGR
Compound annual growth rate
Profit for the year (Shs)
Annual income statement profit attributable to ordinary share holders,
minorities and preference shareholders
Earnings per share (cents)
Earnings attributable to ordinary shareholders divided by the weighted average
number of ordinary shares in issue.
Return on average equity (%)
Earnings as a percentage of average ordinary shareholders’ funds.
Return on average assets (%)
Earnings as a percentage of average total assets.
Net interest margin (%)
Net interest income as a percentage of monthly average total assets
Credit loss ratio (%)
Provision for credit losses per the income statement as a percentage of average
net loans and advances
Cost•to•income ratio (%)
Operating expenses as a percentage of total income before deducting the
provision for credit losses
Effective tax rate (%)
The income tax charge as a percentage of income before tax excluding income
from associates
Dividend per share (Shs)
Total ordinary dividends declared per share in respect of the year
Dividend cover (times)
Earnings per share divided by ordinary dividends per share
Price earnings ratio (%)
Closing share price divided by headline earnings per share
Dividend yield (%)
Dividends per share as a percentage of the closing share price
Core capital
Permanent shareholders equity in the form of issued and fully paid•up shares
plus all disclosed reserves, less goodwill or any intangible assets
Supplementary capital
General provisions which are held against future and current unidentified losses
that are freely available to meet losses which subsequently materialise, and
revaluation reserves on banking premises, and any other form of capital as may
be determined from time to time, by the Central Bank
Total capital
The sum of core capital and supplementary capital.
Total capital adequacy (%)
Total capital divided by the sum of the total risk weighted assets and total risk
weighted contingent claims.
To be a leading PBB business in Uganda, with a critical mass of profitable
customers, with a cadre of vibrant, competent and engaged colleagues
(backbone), delivering excellent and consistent customer service,
enabled by IT excellence and best in class Credit and Operations
capabilities. To this end we will focus on the following priority areas in
2015
• Service excellence – focus on processing times, quality of
transactions processed, reduction in customer complaints and
improvement in customer on boarding. We have clear targets in
terms of the customer rating (NPS score) that we are looking for.
• Overall cost of our network - We will focus on processes as well as
the related operations and Technology platforms
• The staff engagement – Through the performance management
process, calibration of staff goals to business priorities and
consistent conversations
25
31 December 2014
Risk review
Risk review
Risk review
adequacy, and is authorised to investigate or seek any information
relating to an activity within its terms of reference.
The Asset and Liability Committee (ALCO) is responsible for the
management of capital and the establishment of, and compliance with,
policies relating to balance sheet management, including management
of our liquidity, capital adequacy and structural foreign exchange and
interest rate risk.
A description of Stanbic Bank Uganda Limited’s approach to risk
management covering a summary of the overall methodology and the
management of individual types of risks is as expounded below.
Roles and Responsibilities
Stanbic Bank Uganda Limited has a
defined risk appetite, approved by the
Board, which is an expression of the
amount of risk we are prepared to take
and plays a central role in the
development of our strategic plans and
policies. Our overall risk appetite has
not changed. We regularly assess our
aggregate risk profile, conduct stress
tests and monitor concentrations to
ensure that we are operating within our
approved risk appetite using established
risk tolerance bands.
Roles and responsibilities for risk management are defined under a
Three Lines of Defence model. Each line of defence describes a specific
set of responsibilities for risk management and control:
§ First line of defence: all employees are required to ensure
the effective management of risks within the scope of their direct
organisational responsibilities. Business, function and geographic
heads are accountable for risk management in their respective
businesses and functions, and for locations where they have
governance responsibilities
§ Second line of defence: this comprises the risk control owners,
supported by their respective control functions. Risk control
owners are responsible for ensuring that the risks within the scope
of their responsibilities remain within appetite. The scope of a risk
control owner’s responsibilities is defined by a given risk type and
the risk management processes that relate to that risk type. These
responsibilities cut across the Bank and are not constrained by
functional, business and regional boundaries. The major risk types
are described individually in the following sections
§ Third line of defence: the independent assurance provided by the
Internal Audit function (IA). Its role is defined and overseen by the
board Audit Committee.
Risk management framework
The management of risk lies at the heart of our business. One of
the main risks we incur arises from extending credit to customers
through our trading and lending operations. Beyond credit risk, we are
also exposed to a range of other risk types such as market, liquidity,
operational, pension, reputational and other risks that are inherent to
our strategy, product range and geographical coverage
Effective risk management is fundamental to being able to generate
profits consistently and sustainably and is thus a central part of the
financial and operational management of the Bank.
Risk governance
Ultimate responsibility for setting our risk appetite and for the effective
management of risk rests with the Board. Acting within an authority
delegated by the Board, the Board Risk Management Committee
(BRMC), whose membership is balanced between executive and
non-executive directors of the Bank, has responsibility for oversight
and review of prudential risks including but not limited to credit,
market, capital, liquidity and operational. It reviews the Bank’s overall
risk appetite and makes recommendations thereon to the Board.
Its responsibilities also include reviewing the appropriateness and
effectiveness of the Bank’s risk management systems and controls,
considering the implications of material regulatory change proposals,
ensuring effective due diligence on material transactions. The BRMC
receives regular reports on risk management, including our portfolio
trends, policies and standards, stress testing, liquidity and capital
26
31 December 2014
The findings from the IA’s audits are reported to all relevant management
and governance bodies – accountable line managers, relevant oversight
function and committee or committees of the Board.
IA provides independent assurance of the effectiveness of
management’s control of its own business activities (the first line)
and of the processes maintained by the Risk Control Functions (the
second line). As a result, the IA provides assurance that the overall
system of control effectiveness is working as required within the Risk
Management Framework.
The bank’s risk management framework is based on a well-established
governance process, with different lines of defence and relies both
on individual responsibility and collective oversight, supported by a
comprehensive reporting and escalation process. This approach balances
stringent corporate oversight with independent risk management
structures within the business units.
Risk management in banking activities
The management of all significant risks to Stanbic Bank Uganda Limited
and the general banking industry in Uganda are discussed below.
Credit risk
The bank has set in place comprehensive resources, expertise and
controls to ensure efficient and effective management of credit risk,
specifically in the banking activities described below.
§ In lending transactions; credit risk arises through non-performance
by a counter party for credit facilities utilized. Such facilities
are typically loans and advances, including the advancement of
securities and contracts to support customer obligations (such as
letters of credit and performance guarantees).
§ In trading activities; credit risk arises due to non-performance by
a counter party for payments linked to trading related financial
obligations.
Approach to managing credit risk
Credit risk is managed by means of a governance structure with clearly
defined mandates and delegated authorities and also the use of relevant
credit assessment tools in evaluation of new and outstanding facilities
for the customers under the respective business units discussed below.
Corporate & Investment Banking (CIB)
The use of risk rating models combined with an in depth knowledge
and understanding of each customer is essential in assessing the credit
risk of each CIB counter party. A consistent credit rating framework is in
place to assist the bank in making credit decisions on new commitments
and in managing the portfolio of existing exposures. The probabilities of
default under these models are an important component of the formal
credit assessment process of new and existing business. The validation
and ongoing enhancement of these models is a continuous focus area to
ensure that the tools used in these credit assessments remain relevant
and adequate.
Personal and Business Banking (PBB) and Private banking.
The nature of the products and strength of historical data is a
fundamental dependence under credit risk management for the
personal business and private banking customers. A diverse range of
performance analysis techniques are applied across product sets and
potential credits in recognition of the differing asset, maturity and
individual or business profiles.
Rehabilitation & recovery forms a key component of the credit cycle.
All credit portfolios are closely monitored on a regular basis to evaluate
the level of risk assumed against expected risk levels. This role is
competently executed by a fully fledged rehabilitation & recovery unit
within the credit function.
Liquidity risk
Liquidity risk is the risk that we either do not have sufficient financial
resources available to meet our obligations as they fall due, or can only
access these financial resources at excessive cost. It is our policy to
maintain adequate liquidity at all times and for all currencies, and hence
to be in a position to meet obligations as they fall due. We manage
liquidity risk both on a short-term and structural basis. In the short term,
our focus is on ensuring that the cash flow demands can be met where
required. In the medium term, the focus is on ensuring that the balance
sheet remains structurally sound and is aligned to our strategy.
The nature of banking and trading activities results in a continuous
exposure to liquidity risk. The bank’s liquidity risk management
framework however is designed to measure and manage the liquidity
position at various levels to ensure that all payment obligations can
be met under both normal and stressed conditions without incurring
unbearable costs.
27
31 December 2014
Risk review
Risk review
We are in the business of taking selected
risks to generate shareholder value,
and we seek to contain and mitigate these
risks to ensure they remain within our risk
appetite and are adequately compensated.
Approach to managing liquidity risk
The Board is the responsible governing body that approves our liquidity
management policies. The Asset and Liability Committee (ALCO)
receives acting on delegated authority from the board is responsible
for managing Liquidity within pre-defined liquidity limits and in
compliance with liquidity policies and practices, as well as regulatory
requirements.
The principal uncertainties for liquidity risk are that customers withdraw
their deposits at a substantially faster rate than expected, or that
asset repayments are not received on the expected maturity date. To
mitigate these uncertainties, we have structured our funding base to
be diverse and largely customerdriven. While customer deposits are
of short tenor (mainly current accounts) the behavioural is that they
tend to be very stable.
In addition we have contingency funding plans including a portfolio of
liquid assets that can be realised if a liquidity stress occurs, as well as
ready access to wholesale funds under normal market conditions.
Liquidity contingency plans are supplemented by an extensive early
warning indicators methodology supported by a clear and decisive crisis
response strategy. These plans are reviewed periodically for relevance
and reliability.
The following elements are incorporated as part of a cohesive liquidity
management process.
§ Liquidity management at currency level
§ Rolling forecast for demand and supply of overnight and term
liquidity
§ Undertaking regular liquidity scenario/stress testing;
The cumulative impact of the above elements is monitored on a
monthly basis by the bank’s Asset and Liability Committee (ALCO)
and the process is underpinned by a system of extensive internal and
external controls. The latter includes the application of purpose built
techniques, documented processes and procedures, independent
oversight by risk management and regular independent reviews and
evaluations of the effectiveness of the system.
Active liquidity and funding management is an integrated effort across
a number of functional areas. Short term cash flow projections are used
to plan for and meet the day-to-day requirements of the business,
including adherence to prudential and ALCO requirements. Long term
funding needs are derived from the projected balance sheet structures
and positions are regularly updated to ensure the bank’s adherence to
all funding regulations.
28
31 December 2014
Market risk
We recognise market risk as the potential for loss of earnings
or economic value due to adverse changes in financial market rates or
prices. Our exposure to market risk arises principally from customerdriven transactions. The objective of our market risk policies and
processes is to obtain the best balance of risk and return while meeting
customers’ requirements.
Market risk exposures as a result of trading activities are contained
within the bank’s Corporate & Investment Banking trading operations.
The board grants authority to take on market risk exposure to the ALCO.
The bank manages market risk through a range of market risk limits and
triggers. It uses a suite of risk measurement methodologies and tools
to establish limits, including Value at Risk (VaR), Securities revaluation
models (Mark to Market), PV01(Present value of the nominal at the
adverse shock of interest rates by one basis point), stress testing,
loss triggers and other basic risk management measures and internal
controls.
A clear segregation of duties as well as independent reporting lines
exists between the bank’s Global Markets, Global Markets Operations
and Market risk functions.
Approach to managing market risk
Market risk exposure principally involves the management of
the potential adverse effect of interest/ FX rate movements the
economic value of equity. This structural interest rate risk is caused
by the differing re-pricing characteristics of banking assets and
liabilities. The governance framework adopted for the management
of structural interest rate risk and FX volatility mirrors that of liquidity
risk management in terms of committee structures and the setting
of standards, policies and limits. This is also true for the monitoring
process and internal controls.
Non trading interest rate risk
Interest rate risk from non-trading book portfolios is managed by
the Treasury desk under the supervision of the Asset and Liability
Committees (ALCO). Treasury deals in the market in approved financial
instruments in order to manage the net interest rate risk, subject to
approved risk limits.
Operational risk
Operational risk is the potential for loss resulting from the inadequacy
of, or a failure in internal processes, people, systems or external events.
The bank recognizes the significance of operational risk, and the
fact that it is inherent in all business units. The bank’s operational
risk governance standard codifies the core governing principles for
operational risk management and defines a common framework with
the basic components for the identification, assessment, management,
monitoring and reporting of operational risk.
This common framework defines the minimum requirements whilst
ensuring an element of flexibility for each business unit’s particular
operating environments. This framework is further supported by a set
of comprehensive operational risk management policies.
Approach to managing operational risk
The bank’s approach to managing operational risk has been the
adoption of practices that are fit for increasing the efficiency and
effectiveness of the bank’s resources, minimizing losses and effectively
utilizing opportunities. This approach is aligned to the bank’s enterprise
wide risk management framework and adopts sound risk management
practices recommended by the Basel II Accord’s sound practices for
the management and supervision of operational risk and the Bank of
Uganda risk management guidelines among others.
The bank’s independent operational risk management function
performs control and oversight roles, over the implementation of a
set of appropriate policies, governance standards and tools. The tools
include:
§ A centralized operational loss database providing management
reports used to identify improvements to processes and controls
arising from loss trends;
§ Risk and control self assessments through which existing and
potential future risks and their related controls are identified and
assessed; and
§ Key risk indicators which measure specific factors to provide an
early warning to proactively address potential exposures.
§ An escalation matrix that supports the identification, assessment,
quantification and timely escalation of risk incidents to
management for appropriate decision making.
§ A robust business continuity management framework, with
disaster recovery plans to ensure that the bank appropriately
manages the adverse impact from unforeseeable disasters to the
business.
§ A fully fledged financial crime control unit charged with forensic
investigations, fraud prevention and physical security. The
Unit is mandated by the audit committee, and is responsible
for supporting the implementation of the bank’s fraud risk
management framework.
§ An independent operational risk function, tasked with the effective
implementation of the Bank’s operational risk management
framework. Mandated by the board risk management committee,
the strategic approach focuses on operational risk identification,
assessment, quantification and control.
The bank further maintains a comprehensive insurance programme to
cover residual risk as a result of losses from fraud, theft, professional
liability claims, and damage to physical assets while additionally
operating comprehensive internal audit and risk assurance reviews on
all operational aspects of the Bank.
Financial crime control
An independent Financial Crime Control unit within the risk
management function, is charged with forensic investigations, fraud
prevention as well as the overall management of the physical security
risk of the bank. This function ensures the effective implementation
of the bank’s risk management framework through the appropriate
management of fraud risk.
Business continuity management
Business Continuity Management (BCM) is defined as a holistic
management process that identifies potential impacts that threaten
an organization, provides a framework for building resilience and the
effective response that safeguards the interests of its key stakeholders,
reputation, brand and value creating activities.
Business continuity ensures timely availability of all key processes
which are required to support essential activities and customer services
in the event of a disruption of business.
The Bank periodically and as appropriate tests its business continuity
plans, IT Disaster recovery plan, conducts evacuation drills and
simulation exercises across all its points of representation with a view
of validating the adequacy, relevance, reliability and resilience of its
business continuity management framework.
Compliance risk
Compliance is an independent core risk management function that
reports to the Chief Executive and the chairman of the board. The bank
is subject to extensive supervisory and regulatory regimes. Executive
management implements the bank’s compliance risk framework, by
ensuring that the bank conducts its business within the set legal and
regulatory requirements and guidelines.
The bank operates a centralized compliance risk management structure
run by a fully equipped specialized unit that grants oversight on all
compliance related matters. The Compliance unit provides leadership
and guidance on compliance with Anti-money laundering, terrorist
financing, occupational health and safety and any other emerging
legislative developments. The unit also, provides training and awareness
on regulatory developments.
Money laundering control
Legislation pertaining to money laundering and terrorist financing
control imposes significant record keeping and customer identification
requirements on financial institutions, as well as obligations to detect,
prevent and report money laundering and terrorist financing incidents
to Bank of Uganda. The bank continues to strengthen its antimoney laundering and terrorist financing measures as the regulatory
environment becomes more dynamic.
Occupational health and safety
The health and safety of employees, clients and other stakeholders
continues to be a priority. The bank seeks to effectively identify, reduce
or control accidents or injuries to employees, contractors and clients.
The bank continues to focus on ensuring compliance with current legal
and regulatory framework and ensuring that occupational health and
safety procedures are closely linked to the operational needs of the
business.
Taxation risk
Taxation risk is the possibility of suffering loss, financial or otherwise,
as a result of the misapplication of tax systems (whether in legislative
systems, rulings or practices) applicable to the entire spectrum of taxes
and other fiscal obligations to which the bank is subject.
The bank fulfills its responsibilities under tax law in relation to
compliance, planning or client service matters. Tax law includes all
responsibilities which the bank may have in relation to company taxes,
personal taxes, capital gains taxes, indirect taxes and tax administration.
The identification and management of tax risk is the primary objective
of the bank tax and regulatory function, and this objective is achieved
through the application of a tax risk matrix approach, which measures
the fulfillment of tax responsibilities against the specific requirements
of each category of tax to which the bank is exposed, in the context of
the various types of activity the bank conducts.
29
31 December 2014
Risk review
Reputational risk
Safeguarding the bank’s reputation is of paramount importance to its
continued operations and is the responsibility of every member of staff.
Reputational risks can arise from social, ethical or environmental issues,
or as a consequence of operational risk events. The bank’s strong
reputation is dependent on the way it conducts its business, but it can
also be affected by the way in which its clients, to whom it provides
financial services, conduct themselves.
Effective management of all operating activities is emphasized to
establish a strong internal control framework to minimize the risk of
operational and financial failure and to ensure that a full assessment of
reputational implications is made before strategic decisions are taken.
The bank sets clear standards and policies on all major aspects of the
business and these standards and policies are integral to the bank’s
system of internal controls and are communicated through procedures,
manuals and appropriate staff training.
Business/ Strategic risk
Strategic risk is the risk of adverse outcomes resulting from a weak
competitive position or from a choice of strategy, markets, products,
activities or structures. Major potential sources of strategic risk include
revenue volatility due to factors such as macroeconomic conditions,
inflexible cost structures, uncompetitive products or pricing, and
structural inefficiencies.
It is not cost effective to attempt to eliminate all business or strategic
risk and it would not, in any event, be possible to do so. Events of
small significance are expected to occur and are accepted as inevitable;
events of material significance are rare and the bank seeks to reduce
the risk from these in a framework consistent with its expected risk
profile and appetite.
Independent Assurance
The bank’s internal audit function operates under a mandate from the
Board Audit Committee. The Internal audit’s primary objective is to
provide assurance to the audit committee on the quality of controls in
the bank’s operational activities. It assists the executive management
teams in meeting their business objectives by examining the bank’s
activities, assessing the risks involved and evaluating the adequacy and
effectiveness of processes, systems and controls to manage these risks.
A risk based audit approach has been adopted. Material or significant
control weaknesses and planned management remedial actions are
reported to management and Board Audit Committee. These issues are
tracked to ensure that agreed remedial actions have been implemented.
Overdue issues are also reported to the Board Audit Committee on a
quarterly basis.
30
31 December 2014
Risk review
Capital adequacy
2015 Risk Outlook
Minimum requirements
We are in the business of taking selected risks to generate shareholder
value, and we seek to contain and mitigate these risks to ensure they
remain within our risk appetite and are adequately compensated.
The capital adequacy ratio reflects the capital strength of an entity
compared to the minimum requirement set out by the regulator.
Stanbic Bank Uganda Limited is required to meet the Central Bank
capital requirements, set at a minimum capital adequacy ratio of
8% (based on core capital) and 12% (based on total capital). These
regulations are based on guidelines developed by the Bank for
International Settlements.
Our approach to managing capital
Our approach to capital management is to maintain a strong capital base
to support the development of our business, to meet regulatory capital
requirements at all times
The key uncertainties we face in the coming year are set out below. This
should not be regarded as a complete and comprehensive statement of
all potential risks and uncertainties that we may experience.
§ Unpredictable macroeconomic environment
Macroeconomic conditions have an impact on personal
expenditure and consumption, demand for business products and
services, the debt service burden of consumers and businesses,
the general availability of credit for retail and corporate borrowers
and the availability of capital and liquidity funding for our business.
All these factors have the capacity to impact our performance.
Strategic, business and capital plans are drawn up annually covering
a three-year horizon and are approved by the Board. The capital plan
ensures that adequate levels of capital and an optimum mix of the
different components of capital are maintained to support our strategy.
The world economy is coming out of a difficult period and
uncertainty remains. The unwinding of the US Federal Reserve’s
(Fed) quantitative easing programme could lead to higher interest
rates, volatility in financial markets and capital flight which may
threaten the country’s growth trajectory.
The ALCO is responsible for the ongoing assessment of the demand
for capital and the updating of the Bank’s capital plan. The capital plan
takes the following into account:
While inflation appears to be under control changes in monetary
policy (exchange rate or food supply driven) could lead to
significant increases in interest rates, with resulting impacts on
the wider economy.
§ Current regulatory capital requirements and our assessment of
future standards
§ Demand for capital due to business growth forecasts,
loan impairment outlook and market shocks or stresses
§ Available supply of capital and capital raising options. The bank
formulates a capital plan with the help of internal models and
other quantitative techniques.
The Bank uses a capital model to assess the capital demand for
material risks, and supports this with our internal capital adequacy
assessment. Other internal models help to estimate potential
future losses arising from credit, market and other risks, and, using
regulatory formulae, the amount of capital required to support
them.
We balance risk and return, taking account of changing conditions
through the economic cycle, and monitor economic trends very
closely. We conduct stress tests and scenario analysis to assess
the effects of extreme but plausible trading conditions on our
portfolio and also continuously review the suitability of our risk
policies and controls. We manage credit exposures following the
principle of diversification across products, client and customer
segments. This provides for strong resilience against economic
shocks in one or more of our portfolios.
§ Regulatory Changes
Our business will continue to be subject to an evolving and
complex regulatory framework comprising legislation, regulation
and codes of practice. In an attempt to address past and possible
future industry challenges, there has been increased regulation.
The nature, impact and timing of such future changes is not always
predictable and could adversely impact our strategic interests.
Some changes are anticipated to have a significant impact, such
as changes to capital and liquidity regimes and changes to the
calculation of risk-weighted assets (RWA)
§ Risk of Fraud and other criminal acts
The banking industry has long been a target for third parties
seeking to defraud, to disrupt legitimate economic activity, or to
facilitate other illegal activities. The risk posed by such criminal
activity is growing as criminals become more sophisticated and
as they take advantage of the increasing use of technology and
the internet. The incidence of cyber-crime is rising, becoming
more globally co-ordinated, and is a global challenge. We seek
to be vigilant to the risk of internal and external crime in our
management of people, processes, and systems and in our
dealings with customers and other stakeholders. We have a
broad range of measures in place to monitor and mitigate this
risk. Controls are embedded in our policies and procedures across
a wide range of our activities, such as origination, recruitment,
physical and information security. We have a set of techniques,
tools and activities to detect and respond to crime, in its many
forms. We will increase collaboration with our peers, regulators
and other stakeholders to consolidate our efforts.
In addition, the models enable the Bank to gain an enhanced
understanding of its risk profile, for example, by identifying potential
concentrations and assessing the impact of portfolio management
actions. Stress testing and scenario analysis are an integral part of
capital planning, and are used to ensure that the Bank’s internal
capital adequacy assessment considers the impact of extreme but
plausible scenarios on its risk profile and capital position. They
provide an insight into the potential impact of significant adverse
events and how these could be mitigated through appropriate
management actions. The capital modelling process is a key part
of our management discipline. A strong governance and process
framework is embedded in our capital planning and assessment
methodology. The key capital management committee is the Asset
and Liability Committee (ALCO)
31
31 December 2014
Sustainability
Sustainability
Citizenship & sustainability report
Sustainability report (Continued)
The role of governance
Strong governance is the foundation for establishing trust and promoting engagement between a company and its stakeholders. The right culture,
values and behaviour must be adopted by the Board and actively promoted by the Chief Executive and managers at all levels. The Board continues to
have oversight of sustainability, including environmental and social governance.
Sustainability scorecard
Our commitment to sustainability is not
just about the economic activity we
finance, but also about how we run our
business. Our focus is on effective
corporate governance, underpinned by
strong processes and the right values
and culture. By creating a great place to
work for our people, selling our products
and services responsibly, tackling
financial crime and mitigating the
environmental impact of our operations,
we believe that we can make a greater
positive contribution to the communities
in which we operate.
Introduction
We aim to create a robust, resilient and sustainable business in which
our clients can have confidence, our communities can trust and our
other stakeholders can take pride.
Our continuing success in this endeavour depends, in part, on our
ability to identify and address environmental, social and ethical factors
which present risks to our business or offer opportunities to support our
stakeholders in a more sustainable way. These can affect our reputation,
drive employee engagement, and help manage the risks of lending,
leverage savings and secure new revenue streams.
Confidence and trust in the financial system are critical drivers of
sustainable financing which in turn drives economic success and
consequently a harmonious and progressive society. The broader
role we play as a bank in our communities and with our stakeholders
reinforces this trust and confidence.
Material issues impacting our sustainability
We consider an issue to be material when it impacts or has the potential
to impact our ability to remain commercially viable and socially relevant
to the societies in which we operate. In particular, material issues are
those that have a strong bearing on our stakeholders ‘assessments and
decisions about SBUL’s long-term sustainability and its commitment to
their needs. We also take into consideration those factors that affect
the financial stability and growth of the Ugandan economy and in turn
our own business.
32
31 December 2014
Material issues identification process helps us to create areas of focus.
Effectively managing our material issues is critical to achieving our
strategic objectives.
The inputs into identifying our material issues are:
• Engagement with internal and external stakeholders.
• Discussions within executive management.
• Issues tabled at board meetings.
• Business strategy.
• Risk management.
•Regulation.
• Country’s economic priorities.
• Global Challenges
Shareholders
Headline earnings
Return on equity
IT spend as a % of operating cost
Customers
Number of retail customers (PBB)
Number of branches
Number of ATMs
Number of Internet Banking customers
Number of Internet Banking transactions
Number of mobile banking customers
Number of mobile banking transactions
Employees
Number of employees
Number of women employees
Training spend
Number of leadership development participants
Number of Interns
Number of women Managers
Suppliers
Number of suppliers
Total procurement spend
% of procurement with local suppliers
Communities
Corporate social investment spend
Environment
Electricity purchased
Fuel consumed
Water consumed
Paper consumed
2014
135,079
30.3%
14%
2013
101,851
25%
14%
2012
130,734
38%
7%
485,218
78
175
221,293
587,636
174,239
406,118
455,092
74
172
101,949
464,280
65,375
128,565
445,212
74
177
11,150
3,957
9
21
1,879
976
1,901
65
52
158
1,903
981
3,783
5
41
128
1,859
942
2,364
17
0
108
Ushs ’millions
%
1,040
144,280
97%
910
141,996
96%
847
167,217
84%
Ushs
775,377
502,000
207,000
3,919,627
376,693
34,254
65
4,949,874
351,185
33,070
58
N/A
N/A
N/A
N/A
Ushs ‘millions
%
%
Ushs ’millions
kilowatt hours
litres
kilolitres
tons
As part of our sustainability program, we develop systems to enable
us to identify risk and opportunities. From these we establish our
sustainability objectives which are aligned to our strategic business
deliverables and help us address our material issues.
Stanbic bank has identified the following material issues:
•
•
•
•
•
Sustainable long term financial performance
Governance, regulation and stakeholder management.
Sustainable and responsible financial services.
Socioeconomic development.
A positive and consistent employee experience.
33
31 December 2014
Sustainability
Sustainability
Stakeholder engagement
The value added statement below shows our economic impact in 2014
The ways in which we engage with our stakeholders, and the frequency with which we do so, vary according to each stakeholder group. The table
below sets out our stakeholder engagement activities during the year.
Key stakeholder
group
How we engage
Issues raised
Our response
Shareholders
•Analyst briefings, results
presentations.
•Annual general meeting.
•Company website.
•Annual report.
Increased cost growth
Over the past three years we have
invested heavily in our core banking system in order to better serve
our customers and improve business
efficiency.
Customers and
clients
•Satisfaction surveys.
•Various customer channels including
the distribution network.
•Marketing initiatives.
•Relationship and business
managers.
Poor Service levels and long queues in
banking halls.
Effectively understanding the needs of
our customers is an ongoing process.
To this end we are exploring ways to
deploy a queue management solution
within the bank.
Government and
regulators
•Formal meetings, policy
discussions, conferences.
•Onsite visits and compliance
inspections.
Bank of Uganda (BOU) issued a
guidance note to all banks to have an
independent Compliance department.
The bank recruited a Head of Compliance with oversight for the newly and
independent compliance department.
Key sustainability-related performance indicators
681,292
775 million
retail and business customers (2012: 589,130) Committed to corporate social investment.
45,347
number of small and medium businesses
banked (2013: 46,773)
23%
increase in women managers
Ushs 1.9bn
employee training spend (2013: Ushs 3.8bn)
1,879
Employees. (2012: 1,903)
Financial performance
For a detailed discussion on Stanbic bank’s financial performance, please refer to the financial review on page 17 of this annual report.
However as a company operating in the Ugandan economy and the region, we recognise that we play a pivotal role in the economic development
of society. The most fundamental contribution SBUL makes to the societies in which we operate is by maintaining a robust business. This allows us
to pay dividends to our shareholders, salaries to our employees and tax to the Ugandan government. As a buyer of goods and services we play an
important role in supporting local businesses, which provides employment and drives socioeconomic development in local communities. In addition,
our CSI makes a measurable difference to recipients and communities that SBUL depends on to remain sustainable.
Value added statement for year ended 31st December 2014
Value added
Interest income
Commission fee income
Other revenues
Interest paid to depositors
Other operating expenses
Wealth Created
Distribution of wealth
Employees
Government
Ordinary shareholders - (dividends)
Non-controlling interests and preference shareholders
Corporate Social Investment (CSI) spend
Retentions to support future business growth
Wealth Distributed
Value added is calculated as the company’s revenue performance minus
payments such as cost of materials, depreciation and amortization.
The resulting amount is distributed to the stakeholders who include
employees, shareholders, community investments and government. The
total wealth created by the bank in 2014 is UGX 235 billion shillings as
shown in the value added statement above.
Of the total wealth created in 2014 the following is the total flow of
capital among some key stakeholders:
Ushs 120 billion was distributed to employees as remuneration and
benefits: (Ushs 105 billion in 2013)
Ushs 59billion was distributed to the Ugandan government in form of
taxes: (Ushs 50billion in 2013).
Ushs 85billion was paid in dividends to shareholders both ordinary and
non-controlling interests.
Being a Responsible Company
Our commitment to sustainability is not just about the economic activity
we finance, but also about how we run our business. Our focus is on
effective corporate governance, underpinned by strong processes and
the right values and culture. By creating a great place to work for our
people, selling our products and services responsibly, tackling financial
crime and mitigating the environmental impact of our operations,
we believe that we can make a greater positive contribution to the
communities in which we operate.
We present below highlights of our social and environmental interactions
with different stakeholder groups.
2014
Ushs’000
351,109,801
108,575,430
83,814,453
(33,371,594)
(275,558,784)
234,569,306
119,523,617
58,622,426
85,000,000
16,994,638
775,376
(46,346,751)
234,569,306
% of wealth
2013
% of wealth
created
51%
25%
36%
7%
0%
Ushs’000
created
58%
28%
45%
11%
0%
284,985,795
98,618,049
100,785,323
(37,228,207)
(267,417,922)
179,743, 038
104,967,207
50,322,495
80,000,000
20,000,000
502 000
(76,048 ,665)
179,743,038
Customers
Our purpose is to connect customers to opportunities, enabling
businesses to thrive and economies to prosper, helping people
to fulfil their hopes and realise their ambitions. Our dealings
with customers are conditioned by our understanding of their
needs, the quality of the service we provide and the standards
which govern how we operate. With over 500,000 personal
and business customers in the country, we know that only by
putting customers at the centre of what we do can we achieve
our purpose.
Customer service and satisfaction
Our objective is to deliver a ‘consistent and excellent service for our
customers at every Stanbic Bank customer touch point. We measure
customer experience through formally assessed and analysed customer
feedback which is used as a basis for improvement.
In 2014 we adopted the globally accepted Net Promoter Score (NPS),
which gauges the propensity of customers to recommend Stanbic bank
to their family and friends, as the key measure of customer loyalty
across our vast network. In response to valuable customer feedback
and internal stakeholders we focused our efforts on improving and
strengthening those aspects of our operations that create convenience
and quality customer service to our existing and potential customers
and at the close of 2014 we noted significant improvement in the key
service areas like customer on-boarding, queue management, query
and compliant handling, turnaround times and duty of care.
Managing complaints
We have gained valuable insights over the years from the complaints
management process. This has helped us to tailor solutions and service
offerings to meet our customers’ individual needs.
Our aim is to develop a consistent approach to complaints management
aligned to regulatory requirements and ensure that customer complaints
are handled in an accessible, transparent and efficient manner in line
with the Bank’s commitment to treating our customers fairly.
34
31 December 2014
35
31 December 2014
Sustainability
Sustainability
The diversity of our client base by age, location, banking needs,
nationality, business lines and gender means that every interaction with
the bank is an opportunity for us to make a memorable contribution to
their lives but also means we can jeopardize this valuable relationship
by being unresponsive to complaints from our customers. We therefore
strengthened our complaints framework in 2014 to include all
operations across the Stanbic bank.
A query or complaint starts when it is initiated by the customer, and
ends when the customer has received a full and satisfactory resolution.
In order to adequately address all customer complaints or queries
we do have a formal complaints handling framework in all our areas
of representation that covers walk in customers in our branches,
telephonic, email or postal correspondence, dedicated customer care
centres, our website, individual staff members, media & social networks,
senior management and the Office of the Chief Executive. These
avenues ensure that customers are treated fairly and transparently in
all that we do.
Customer Value Propositions
The bank maintains a reward scheme for employees who assist in
detecting and stopping fraud. Over Ushs 100 million was paid out in
2014 to vigilant staff that identified and stopped fraud. This is also
complemented by an additional fraud incentive scheme at group level
where staff can be rewarded up to South African Rands 1,000,000
for identifying and stopping fraud. The bank also has a number of
robust systems, processes, human capital detection and prevention
capabilities that assist in identifying financial crime.
The Bank has a whistle blowing policy where employees and customers
are encouraged to report any financial crime incident and/or
misconduct through our toll free hotline0800160200. This platform
is independently and externally managed to maintain anonymity of the
whistle-blowers. No whistle-blower is disadvantaged when reporting
legitimate concerns in any form. The bank undertakes to protect
employees/customers who in good faith make a report in accordance
with procedure set out in the whistle blowing policy, but will not protect
employees who maliciously make false reports. In such instances
appropriate disciplinary actions will be taken.
We understand that each of our customers is unique and so are their
banking needs. We have in place Customer value propositions that
clearly spell out the benefits our different customer groups stand to
enjoy by choosing product sets that we have tailored for them. We
invest significant time and effort in understanding the changing needs
of these customers and continually use the insights we get to constantly
update these value propositions.
In order to secure the safety of its customers and branches, the
bank has implemented robust physical security and logical access
controls to guarantee the safety of its customers and branches. The
bank’s most prized control is its competent human capability that is
carefully selected, trained and deployed. In 2014, the bank carried out
training of over 80 merchants to further create awareness and protect
customers against card fraud among others.
In July 2014, we introduced the Stanbic Bank student account called
EZ Dimez. This account is designed for youth between 18 to 25 years
of age who are studying either in high school, university, college or
any other tertiary institution. This new product has been developed
as a broadly free savings product and is enabled on all our existing
electronic channels that include a Visa ATM card that can be used
anywhere in the world, free internet and mobile banking and most
importantly account holders can access an EZ Dimez bi-annual career
guidance and financial literacy seminar .
It is Bank policy not to condone any instance of financial crime and/
or corruption. Where an employee is found to have been involved in
committing the fraud, the bank will take immediate action to discipline
the staff and will further pursue the matter in the courts of law to seek
for justice and pursue recovery of money lost including attachment of
the assets acquired through criminal means. In 2014, over 20 staff
were relieved of their duties on account of fraud.
We believe this product will help establish a sound financial history
against which we will develop secondary credit products to support the
youth’s future lifecycle requirements and in the long term address
social challenges related to lack of access of funds necessary for youth
entrepreneurial ventures that are so vital to a growing economy like
Uganda. At Stanbic we view this as long term and fruitful partnership
that demonstrates our commitment to the communities in which we
operate.
Enhancing customer trust - Managing financial crime
Financial crime impedes economic progress. We strive to limit the risk
of financial crime within our business by maintaining strong policies
and procedures. These are underpinned by important programs to
continually enhance our systems and controls and to raise awareness of
the critical role of employees in combating financial crime.
Ensuring the safety of our people and assets, and the security of our
systems and processes, enables us to enhance a positive customer
experience and instil trust in the bank. We are intolerant to all forms
of financial crime, including fraud, bribery and corruption, terrorist
financing or money laundering.
The Board approved the revised Anti-Financial Crime Policy in 2014.
The policy seeks to develop a culture across the bank, which raises
awareness of the risks and consequences of financial crime. The policy
underlines the framework for prevention, detection and responses to
financial crimes. The policy is applicable to all staff, contractors, public
and suppliers of services to the bank.
36
31 December 2014
A total of 2,500 employee trainings in financial crime risk and awareness
were carried out in 2014. The training was meant to empower our staff
to recognise, identify, report and mitigate fraud.
Employees
At 31 December 2014 we had a total workforce of 1,879
employees compared with 1,903 at the end of 2013. Our main
centres of employment are our branches where over 1000 of
our employees are stationed. In the context of the current
competition in the banking environment, a high performance
and values-led work force is critical. We encourage open and
honest communication in decision making. Employment issues
and financial, economic, regulatory and competitive factors
affecting the Bank’s performance are regularly shared with our
employees.
Diversity and inclusion
Stanbic Bank is committed to building a values-driven high performance
culture where all employees are valued, respected and where their
opinions count. We remain committed to meritocracy, which requires
a diverse and inclusive culture where employees believe that their
views are heard, their concerns are attended to and they work in an
environment where bias, discrimination and harassment on any matter,
including gender, age, ethnicity, religion and disability are not tolerated
and where advancement is based on objective criteria. Our inclusive
culture helps us respond to our diverse customer base, while developing
and retaining a secure supply of skilled, committed employees. Our
culture will be strengthened by continuing to employ the best people
and optimising their ideas, abilities and differences
Employee development
The development of our employees is essential to the future strength
of our business. We have implemented a systematic approach to
identifying, developing and deploying talented employees to ensure
an appropriate supply of high calibre individuals with the values, skills
and experience for current and future senior management positions.
In 2014, we made significant progress on this front. We successfully
identified a talent pool which is our next generation of leaders and
developed career plans for each of them. We shall continue to identify
more, support, coach and provide all the necessary support to help them
achieve their aspirations and support the bank’s talent requirements
for future competitiveness.
We continued to maintain a robust training agenda for all employees
throughout the year to provide functional, technical, product and sector
knowledge; as well as soft skills, management and build leadership
capability. In addition mandatory compliance training mostly through
self- study was undertaken during the year.
The bank delivers continuous learning using a blended approach
comprising of on the job interventions; coaching and mentoring; as well
as classroom instructor led courses. Staff are encouraged to undertake
self-study through the provision of online resources and e-learning. This is in line with 70:20:10 framework which is advocated globally
for effective learning in organisations. This approach recognises that
the most effective learning occurs when 70% of it is experiential, 20%
social and 10% formal.
Employee Safety, Health and Wellness
Stanbic Bank is committed to providing a safe and healthy environment
for our employees, customers and visitors and pro-actively managing
the health and safety risks associated with our business. Our objectives
include identifying, removing, reducing or controlling material health
and safety risks, reducing the likelihood of fires, dangerous occurrences
and accidents to employees, customers and visitors. The operations
department within the bank has overall responsibility for health and
safety and has set global health and safety policies and standards to
support their efforts. Our security unit in the operations department
conducts biannual security reviews of the critical buildings to ensure
measures to protect our staff, assets and information are appropriate
to the level of threat.
Through our partnership with ICAS (The International Counselling &
Advisory Services), and our medical Insurance service provider Liberty
Health, we educate and sensitize our staff with relevant health and
wellness information. Liberty Health boasts of over 75 service providers
spread out in different areas in the country, making accessibility to
health solutions convenient for our staff. ICAS provides telephonic and
face-to-face counselling services to our employees and their immediate
household members. ICAS affiliates have also been instrumental in
handling trauma for branches where we have lost staff or those that
have been exposed to security threats . The introduction of Onsite
counselling clinics for staff members was well received improved the
utilization of the program.
The bank takes a special interest in the life threatening disease policy.
Through the chronic management plan on our Liberty Health Medical
cover, employees and their dependants are encouraged to register for
long term ailments like HIV/AIDs and hypertension. Every year we
conduct Health Weeks during which we offer a range of screenings
and assessments to employee. These include blood cholesterol, blood
pressure, individual stress assessment, and HIV counselling and testing.
The aim of these assessments is to assist employees in the early
identification and treatment of health risks. In addition we launched
the E-Care program that has reinforced the employee wellness
program through the provision of on line self-management tools to our
employees.
In 2015, we look to coming up with initiatives’ to improve the utilisation
of the Employee Wellness program which we believe helps staff make
the right health choices.
People and values
We are focused on building a culture that is based on responsibility and
accountability and aligned with our values. Our diverse and collaborative
workforce and deep commitment to doing the right thing is what makes
our culture stand out. Our purpose statement, “Transforming lives for
a better Uganda” helps our people to act with conviction, nurture
relationships with our clients and customers and uphold the highest
standards of conduct and integrity. For more than 5 (Five) years, our
performance reviews have taken into account the extent to which our
employees demonstrate our values as they help the bank to achieve
the objectives we set .
Remuneration policy
The quality and commitment of our employees is fundamental to our
success and accordingly the Board aims to attract, retain and motivate
the very best people. As trust and relationships are vital in our business
our goal is to recruit those who are committed to making a longterm career with the organisation. Stanbic’s reward strategy supports
this objective through balancing both short-term and sustainable
performance. Our reward strategy aims to reward success, not failure,
and be properly aligned with our risk framework and related outcomes.
In order to ensure alignment between remuneration and our business
strategy, individual remuneration is determined through assessment of
performance delivered against both annual and long-term objectives
summarised in performance scorecards as well as adherence to our
values. Altogether, performance is judged, not only on what is achieved
over the short and long term, but also on how it is achieved, as the
latter contributes to the sustainability of the organisation. The financial
and non-financial measures incorporated in the annual and long-term
scorecards are carefully considered to ensure alignment with the longterm strategy of the Bank.
The Employee Value Proposition
In April 2014 we launched our Employee Value Proposition. This helped
us to articulate to our staff the “deal” that we offer to them in return
for their input into delivering the bank’s objectives both short and long
term. We will continue to monitor and review this value proposition in
line with the changing market to to ensure it continues to drive not just
our competitiveness in the Human Resource market but our long term
sustainable growth as well.
Regulators & government
A sound and stable banking sector is critical for vibrant economy
and a progressive society. At Stanbic Bank, we aim to respond
positively to the evolving regulatory and statutory landscape as
they seek to foster stability. We seek to constructively engage
our regulators and government and to improve our regulatory
and public disclosures in order to improve transparency and to
remain consistent with society’s expectations.
New regulations
New regulation has extensive bearing on business and impacts dayto-day operations, talent management, pricing decisions and product
design, as well as ethics and culture. The ability to manage regulatory
change in a strategic and cost-effective manner is an important source
of competitive advantage for financial services organizations.
37
31 December 2014
Sustainability
Sustainability
Bank of Uganda issued a guidance note that required all banks have
independent compliance functions headed by a senior member of
management. To comply with this requirement, a fully instituted
compliance department is now in place with an Executive Head
reporting to the Chief Executive. The purpose of the compliance
function is to ensure management and staff conduct business activities
in compliance with relevant statutory, supervisory and regulatory
requirements without unreasonably impacting returns and profitability
of the business.
Key regulatory requirements that impacted our operations this year
include the consumer protection guidelines and the recently passed
Anti- Money Laundering Act 2013 whose provisions established the
Financial Intelligence Authority that has oversight over all anti money
laundering related matters in the industry .In compliance with the AntiMoney Laundering (AML) Act, the bank has recruited a dedicated
Money Laundering Control Officer and AML Analysts in order to
fulfil the reporting obligations to the Financial Intelligence Authority.
The obligations include; reporting suspicious transactions and large
cash transaction transactions. Additionally, the bank implemented an
automated system to monitor and flag any suspicious transactions on
accounts and has also initiated steps to closely work with the recently
established Financial Intelligence Authority.
The bank is cognisant of the fact that customers are the heart of the
business therefore in line with the Consumer Protection Guidelines; the
bank incorporated the requirements of the guidelines in its operating
procedures.
To further reinforce the importance of compliance within our culture,
mandatory compliance online courses and compliance Risk awareness
trainings were rolled out. This demonstrates bank’s commitment to help
strengthen our compliance culture.
Communities
At Stanbic Bank, we strive to ensure that the way we do business
reflects broader societal and environmental considerations.
Promoting the social and economic well-being of communities
is a critical component of our strategy to support sustainable
development in our markets. Our community investment
activities focus on health and education, with youth as an
important demographic target in resonance with the composition
of our society.
Strategic partnerships and transformation
We work with international organisations that facilitate the achievement
of the Millennium Development Goals in Uganda.
SBU’s social investment strategy aims at making an optimal impact by
partnering with local and international organisations to offer appropriate
interventions and empower people to transform their lives. Below are
some of 2014’s key partnerships through which we were able to make
a significant improvement in beneficiaries’ livelihoods.
a.) Stanbic Bank-AVSI partnership on Financial Literacy Training
to eradicate extreme poverty and hunger.
The Challenge: Many people have lost their property/savings
due to poor financial decisions resulting from lack of financial
knowledge.
According to the Fin scope report-2010, almost half of the adult
Ugandans are currently borrowing (45%), of which 20% have
ever saved but stopped and 35% have never saved.
38
31 December 2014
Far too many Ugandans – about 72% – don’t use banks at all,
despite the financial advantages they provide.
Our Involvement: In partnership with AVSI, Stanbic Bank organized
25 financial literacy trainings for 750 vulnerable households
across the country to teach them important aspects about
personal saving, debt management, budgeting, and financial
services among others.
Impact/outcome
• 602 Households had been trained.
•
7,453 individuals have been reached of whom 3,412 (46%)
are vulnerable children’s households.
b.) Stanbic Bank Health Week in partnership with Shanti
Uganda aimed at improving maternal health.
Stanbic Bank partnered with Shanti Uganda to sensitize the public
about safe motherhood and also expand Shanti’s birth house in
Luweero – a rural area with no referral hospital.
The Challenge: It is estimated that 16 women die every day in
Uganda due to pregnancy and childbirth complications according
to a World Health Organisation report on maternal health in
Uganda.
Our Involvement: Stanbic Bank invested over UGX 30M to
undertake a public campaign at Shoprite Lugogo grounds and to
expand the birth house in Luweero.
The campaign was free and open to the public and offered various
health services such as HIV testing and counselling, holistic
maternal health and family planning.
Impact/outcome
•
•
•
•
250 people learnt about holistic maternal health, HIV/AIDs,
family planning.
99 people tested for HIV/AIDs
67 people counselled about family planning options
Shanti Uganda also received an ambulance donation from
Pulse international as a result of the campaign.
c.) Stanbic Bank partnered with Red Cross to set-up First Aid
Posts for people in Kampala
Stanbic Bank in partnership with Uganda Red Cross Society
planned to set up 3 First Aid Posts in different locations of
Kampala to offer health services to emergency medical victims of
accidents that occur within the city.
The Challenge: Uganda is estimated to have 2,954 deaths
resulting from road accidents, one of the highest rates in Africa
according to a World Health Organisation report on road safety.
We believe that inadequate first aid services contribute to such
high figures.
Our Involvement: Stanbic Bank invested over UGX 50M in
medical equipment and drugs on this project to curb death due to
road accidents by providing timely health care through Red Cross
which will be responsible for managing the FA posts
The objective was to prepare young people for the real world by
showing them how to generate wealth and effectively manage it,
how to create jobs that make their communities more robust, and
how to apply entrepreneurial thinking to the workplace.
Impact/outcome
• Medical equipment for 3 First Aid Posts handed over to Red
Cross.
• Kampala’s Old taxi park post was fully renovated and opened
to the public.
• The Post attends to 20 – 30 emergency cases on Normal
days and 60 - 100 cases on chaotic days.
d.) Stanbic ISU Family Fun Run to promote universal primary
education.
Stanbic Bank together with ISU organizes an annual family run to
raise funds for underprivileged children to access education and
also support two local charities.
The Challenge: A number of children drop out of school due
to lack of scholastic materials and other support resources such
as food. Most of them take to the street which increases their
vulnerability.
Our Involvement: We took part in meticulously organising this
event and sponsored willing staff together with their family
members to participate.
Impact/outcome
•
•
•
•
•
•
f.)
1093 students and 10 teachers trained in entrepreneurial
skills.
45 student mini companies were formulated.
Entrepreneurial skills training for Youths with Disabilities
Stanbic Bank in partnership with Uganda society for disabled
children (USDC) undertook to train 15 Youths with disabilities in
four different vocational disciplines i.e. tailoring, soap making,
mats, and bead making skills.
The Challenge:It is estimated that 7- 10% of the 33 million
Ugandans are disabled. 55% of people with disabilities (PWDs)
lack functional literacy, 33% reached only Primary Seven and
22% have a mental handicap. (UBOS 2006). About 1,300,000
are children and young people who need a form of rehabilitation.
43% of children with disabilities (CWDs) are not considered
normal by their families and therefore discriminated.
Impact/outcome
764 Participants were registered among which were 200
staff along with their families.
UGX 39,795,000 was raised towards the cause that is
expected to benefit 307 students in accessing education.
The funds will be distributed as follows;
UGX 13,265,000 went towards 1 underprivileged student
who will access world class quality education at ISU.
UGX 13,265,000 went towards 106 former street children
mainly of Karamojong origin to access education for yet
another year at Victory Kindergarten and primary school.
The remaining UGX 13,265,000 went towards supporting
200 homeless children at Tomorrow’s Heroes to access basic
education, health and food.
e.) Stanbic Bank Youth Entrepreneurship
partnership with Junior Achievement
Impact/outcome
•
Program
in
Stanbic Bank partnered with Junior Achievement (JA) to provide
the youth with practical skills that will enable them become
entrepreneurs and create jobs.
The Challenge: Youth unemployment rates are really high and
not only in Uganda but the world over. Statistics in Uganda
suggest that 83% of people under 24 years are unemployed yet
more than two thirds of Uganda’s population is below the age of
24. Therefore the youth unemployment challenge is real and is
perhaps Uganda’s most pressing challenge.
Our Involvement: The bank invested UGX 50M in the program
to enable it create business clubs in at least 10 participating
schools. Each club developed a company and products or
services to trade in. These student companies are guided by JA
experts and mentored by Stanbic Bank staff – who in this case
are volunteering to offer real life experiences. Each volunteering
Stanbic Staff is attached to a school which he/she visits to mentor
regularly.
•
•
15 youths with disabilities trained in 4 vocational disciplines.
Community mentors have been attached to them to help
them find suitable locations for their businesses that they are
to start with the skills learnt and to market their products.
g.) Entrepreneurial Training for Children affected by War
Stanbic Bank partnered with War Child to train 200 Young people
in agronomy and horticulture.
This was done with the objective of providing young people in
Lango Region with locally marketable and sustainable vocational
skills to enable them start a business or get employment.
The Challenge: Northern Uganda, just emerging from conflict,
arguably has the highest unemployment rates nationally. Many
households lack means of production, having lost them to the war.
It is also evident that many youth, having been born and raised in
camps for the internally displaced, lack the skills for production
and employment.
Impact/outcome
•
•
200 youths affected by war are being trained in agronomy
and horticulture.
We hope that 200 young people will start earning from
agronomy and horticulture and sustain themselves financially.
During 2014, the Bank committed over UGX 775 million in what we
believes to be the most catalytic activities to growth and development
that are aimed at improving the livelihoods of over 54,000 people
across the country as shown below.
39
31 December 2014
Sustainability
Corporate Governance
Number of beneficiaries
Education
Entrepreneurial Skills Development
Health
Water/ Environment
Employee Community Involvement
Total
Community Investment (Ushs ‘000)
Education
Entrepreneurial Skills Development
Health
Water/ Environment
Employee Community Involvement
Total
2014
7,760
1,308
646
44,750
200
54,664
2013
400
2,200
4,296
11,200
18,096
2014
254,607
72,000
122,770
156,000
170,000
775,377
Stanbic Bank community investment
160
2013
85,000
150,000
112,000
155,000
502,000
140
800,000 775,377
54,664
50 ,000
Ushs'000
700,000
600,000 60 ,000
40 ,000
502,000
500,000
30 ,000
400,000
300,000
207,000
200,000
20 ,000
18,096
10 ,000
9,680
100,000
2012
2013
2014
Community Investment
Number of beneficiaries
Suppliers
We support businesses across our footprint through our network
of more than 20,000 suppliers. We use our procurement
management policies and practices to support businesses in
our communities, strengthen risk awareness and transparency
around our supplier expenditure.
The bank operates a strict procurement process that ensures that small
Ugandan businesses and suppliers benefit from the bank’s procurement
spend. We consider our suppliers an important component of our
value chain and therefore strive to nurture an economically productive
relationship in which SBUL supports local businesses.
Therefore as part of our economic impact on society in 2014, we
spent Ushs 144 billion buying goods and services from suppliers. Of
this, Ushs 140 billion (or 97% of our procurement spend) was paid
to local suppliers and Ushs 4billion (or 3%) from foreign suppliers.
This demonstrates our commitment to supporting local businesses
in Uganda. The table below (in billions of shillings) represents
our spend track record for the past three years. We have restated
prior year numbers to include capital expenditure items as well.
40
31 December 2014
140
120
100
80
60
40
27
20
6
2012
2013
Local suppliers (Billions)
Year
2012
119,000
50,000
30,500
7,500
207,000
136
140
900,000
2012
1,180
2,000
1,500
5,000
9,680
4
2014
Foreign suppliers (Billions)
Our Environmental Impact
We seek to minimise the environmental impact of our operations.
This agenda has had a perfect fit with our long term objective
to reduce the operating cost of our business and to increase
operational efficiency. we have used this opportunity to
embed environmentally sensitive activities so as to reduce our
environmental footprint.
Our digital strategy which partly aims to reduce the paper intensity of
our business will also contribute to securing the environment. In 2014,
we rolled out an Imaging and workflow solution with the objective
of improving the speed at which work is received within operational
centres. This solution is expected to increase productivity and result
in less usage of paper as digital images will now be used to process
customer instructions and archive records.
We continually aim to preserve the environment as we undertake our
business activities. Stanbic Bank Uganda recorded a saving in power
consumption of 14.8 megawatts (which is equivalent to 8.7 tonnes of
carbon dioxide).
Environmental sensitivity will continue to be a key consideration in our
operational and investment agenda.
Our board and executive management
through the governance process play a
critical role in the delivery of our strategy.
Key for the board is to ensure that we have
the right strategy in place, an appropriate risk
management and control framework and the
right team to deliver sustainable shareholder value.
41
31 December 2014
Executive Committee (EXCO)
Board of Directors
Mr. Japheth Katto (63)
Patrick Mweheire (44)
Philip Odera (55)
Patrick Mweheire (44)
Philip Odera (55)
Victor Yeboah-Manu (45)
Chairman
B.Com honours
ACCA
Appointed: 2014
Chief Executive
BSc (Economics) (Daemen)
MBA (Harvard)
Appointed: 2012
Out-going Chief Executive
BA (Economics)
(St. Lawrence, NY)
MBA (Finance) (Suffolk, Boston)
Appointed: 2007
Chief Executive
Out-going Chief Executive
Chief Financial Officer
Douglas Kamwendo (41)
Elias Kagumya (40)
Brendah Nabatanzi Mpanga (40)
Head: Personal & Business Banking
Head: Risk
Head: Legal / Company Secretary
Rita Balaka (54)
Miriam Naigembe (40)
Moses Mbubi Witta (37)
Head: Compliance
Head: Operations
Head: Human Resource
Kitili Mbathi (55)
Ruth Emunu (66)
Barbara Mulwana (50)
BA (Economics and Political Science)
(Michigan),
Master of Banking and Finance for
Development (Instituto Finafrica-Milan)
Appointed: 2001
BA. (Minnesota),
PGD (Public Administration) (Makerere)
Appointed: 2009
BSc (Electrical Engineering and Computer
Science) ,
(Northwestern),
Appointed: 2009
Samuel Sejjaaka (51)
Josephine Ayugi Okot (48)
Patrick Masambu (63)
BCom (Makerere),
MSc (Financial Studies) (Strathclyde),
PhD (Accounting and Finance)
(Makerere)
Appointed: 2007
BCom (Makerere University Business School),
Marketing Diploma (Helsinki School of
Economics and Business Administration),
MBA (Washington International University)
Appointed: 2011
BSc (Engineering) (Nairobi),
MBA (ESAMI),
PGD (Telecom Systems) (Essex)
Appointed: 2009
42
31 December 2014
43
31 December 2014
Corporate governance statement
Corporate Governance Statement (Continued)
Introduction Board of directors
This corporate governance statement sets out the governance
framework adopted by the Board of Stanbic Bank Uganda Limited (the
“Company”) and highlights the key activities during the year.
In its approach to governance, the Board embraces best practice
principles based on the understanding that sound governance practices
are fundamental to earning the trust of the Company’s stakeholders.
This is critical to sustaining the Company’s performance and preserving
shareholder value. The Company’s broad corporate governance
approach is detailed in a policy for that purpose.
The Board strives to embrace relevant local and international best
practice and is committed to upholding the fundamental tenets
of governance which include independence, social responsibility,
discipline, transparency, accountability and fairness to all stakeholders.
Owing to the Company’s relationship with the Standard Bank Group and
where appropriate, the principles of the King Code inform a significant
portion of the governance framework and practices of the Company.
In the year under review, the Company complied with all applicable
laws, rules, regulations and guidelines on corporate governance.
The Company’s governance framework enables the Board to fulfil its
role of providing oversight and strategic counsel in balance with its
responsibility to ensure conformance with regulatory requirements
and risk tolerance. It also provides the parameters for delegating its
authority.
Codes and regulations
As a licensed commercial bank and listed company, the Company
operates in a highly regulated environment and is committed to
complying with legislation, regulations, and codes of best practice.
Complying with all applicable legislation, regulations, standards and
codes is integral to the Company’s culture. The Board delegates
responsibility for compliance to management and monitors this through
the compliance function. Oversight of compliance risk management is
delegated to the Audit Committee, which annually reviews and approves
the compliance plan. On a quarterly basis, the Audit Committee receives
reports from the Compliance function on, among other things, the
status of compliance risk management in the Company and significant
areas of non•compliance. On a quarterly basis, the Audit Committee
also reviews the significant interactions and correspondences with
the Regulator. The compliance function and governance standards are
subject to review by internal audit.
The impact of new and proposed legislation and regulations is
assessed by management and material regulatory issues and legislative
developments are escalated to the Risk Management and Audit
Committees. Following the passing of the Ugandan Companies Act, the
Board implemented most of the changes in the course of 2013.
Whilst the Company continues to nurture a strong culture of governance
and responsible risk management in line with Standard Bank Group’s
risk appetite and governance framework, it is constantly monitoring its
practices to ensure that they are best fit for it and serve to enhance
business and community objectives.
The Company is committed to social responsibility and sound
environmental management in its lending and other activities.
44
31 December 2014
Board structure and composition, including
independence classification The Board of Directors is the Company’s highest decision making body
and is ultimately responsible for governance. Directors are elected by
the shareholders. The Company has a unitary board structure and the
roles of Chairman and Chief Executive are separate and distinct.
The Chairman is an independent non executive director, as are
the majority of directors on the Board. The balance of executive,
non•executive and independent directors ensures a balance of power on
the Board, so that no individual or group can dominate board processes
or decision making and ensures the appropriate level of challenge. The
number and calibre of independent non executive directors on the
Board ensures that board decision making is sufficiently informed by
independent perspectives.
Succession planning
Succession planning is a key focus of the Board which, on an ongoing
basis, considers the composition of the Board and its committees to
ensure continued effectiveness. The retention of board members with
considerable experience is sought to ensure that appropriate levels of
management are maintained.
As part of the Board’s responsibility to ensure that effective
management is in place to implement Company strategy, management
succession planning is an ongoing consideration. During the course
of 2014, the management team identified a pool of high potential
employees as the next generation of business leaders. A specific
development plan was put in place for each member of this talent
pool in addition to an on-going program of interaction and mentoring
with the executive committee.The Board is therefore satisfied that the
current pool of talent available within the bank and the work being
done to strengthen the talent pool provides adequate succession depth
for both the short and long term.
There were a number of changes in the executive management
team including the appointment of Miriam Naigembe (Head:
Operations) and Rita Balaka (Head: Compliance) who was appointed
following the issuance of the Bank of Uganda Risk Management
Guidelines for Supervised Financial Institutions 2010, where the
Compliance function was re-profiled requiring the appointment
of a head of compliance reporting to the Chief Executive.
Skills, knowledge, experience and attributes of
directors
The Board ensures that directors possess the skills, knowledge and
experience necessary to fulfil their duties. The directors bring a
balanced mix of attributes to the Board, including: •
•
•
Domestic and international experience;
•
•
•
Regulatory experience;
Operational experience;
Knowledge and understanding of both macroeconomic and
microeconomic factors affecting the Company;
Expertise in risk management and internal financial control; and
Financial, entrepreneurial and banking skills.
The directors’ details are provided on pages 42.
Access to information and resources
•
Executive management and the Board interact regularly. This is
encouraged and Executive Committee members are invited to attend
board meetings where necessary. In addition, non•executive directors
meet without the executive directors in closed sessions, where
necessary.
•
Directors have unrestricted access to management and company
information, as well as the resources required to carry out their roles
and responsibilities. This includes external legal and other professional
advice at the Company’s expense where necessary. A policy to regulate
this process was adopted by the Board in 2012. It also includes
unlimited access to the advice and services of the Company Secretary,
who assists in providing any information or documentation they may
require to facilitate the discharge of their duties and responsibilities.
•
•
•
Approve the remuneration of non•executive directors on the
board committees and make recommendations to shareholders
for approval;
Ensure that an adequate budget and planning process exists,
measure performance against budgets and plans and approve
annual budgets for the Company;
Consider and approve the annual financial statements, interim
results and dividend and distribution announcements and notices
to shareholders;
Assume ultimate responsibility for financial, operational and
internal systems of control and ensure adequate reporting of
these by respective committees; and
Take ultimate responsibility for regulatory compliance and ensure
that reporting to the Board is comprehensive.
Strategy
Appointments
The appointment of directors is governed by the Company’s articles
of association and is subject to regulatory approval in line with the
applicable legislation and regulations. Directors are appointed by
shareholders at the AGM and interim board appointments are allowed
between AGMs. These appointments are then confirmed at the AGM.
There is a formal process for the appointment of directors. Information
is provided to shareholders of the director’s education, qualifications,
experience and other directorships.
The Board takes cognisance of the knowledge, skills and experience of
prospective directors, as well as other attributes considered necessary
for the role. The Board also considers the need for demographic
and gender representation. Furthermore, candidates are subject to
a “fit and proper” test, as required by the Financial Institutions Act.
Board responsibilities
The key terms of reference in the Board’s mandate, which define its
responsibilities, include the following: Agree the Company’s objectives, strategies and plans for achieving
those objectives;
• Review annually the corporate governance and risk management
process and assess achievement against objectives;
• Review its mandate at least annually and approve recommended
changes;
• Delegate to the Chief Executive or any director holding any
executive office or any senior executive any of the powers,
authorities and discretion vested in the directors, including the
power of sub•delegation;
• Delegate similarly such powers, authorities and discretions to any
committee and subsidiary company boards as may exist or may be
created from time to time;
• Determine the terms of reference and procedures of all board
committees and review their reports and minutes;
• Consider and evaluate reports, submitted by members of the
executive;
• Ensure that an effective risk management process exists and is
maintained throughout the Company ;
• Review and monitor the performance of the Chief Executive and
executive management;
• Ensure consideration is given to succession planning for the
executive management;
• Establish and review annually and approve major changes to
relevant policies;
The Board is responsible for the Company’s strategic direction. The
Company strategic plan is reviewed and any updates presented by
management annually and discussed and agreed with the Board. The
Board ensures that the strategy takes account of any associated risks
and is aligned with the Company and vision, values, performance and
sustainability objectives.
Once the financial, governance and risk objectives for the following
year have been agreed, the Board monitors performance against these
objectives on an ongoing basis. Financial performance is monitored
through quarterly reports from management, and governance and risk
are monitored by the relevant risk committees, and reviewed by the
Board. Delegation of authority
The Board retains effective control through a well•developed
governance structure that provides the framework for delegation.
Board committees facilitate the discharge of the Board’s responsibilities
by providing in•depth focus on specific areas of board responsibility.
The committees each have a mandate that is annually reviewed and
approved by the Board. Details of how these committees operate
follow. The Board delegates authority to the Chief Executive and Executive
Committee to manage the business and affairs of the Company. The
executive committee assists the Chief Executive in the execution of
his mandate. The Chief Executive is tasked with the implementation
of board decisions and there is a clear flow of information between
management and the Board, which facilitates both the qualitative and
quantitative evaluation of the Company’s performance.
The Company Secretary’s office monitors board•delegated authorities.
The executive committee is set out on page 43.
Board meetings
The Board meets once a quarter with an additional meeting annually to
consider strategy. Ad hoc meetings are held when necessary. Directors
are provided with comprehensive documentation at least four days
prior to each of the scheduled meetings.
45
31 December 2014
The attendance of board meetings in 2014 is set out in the following
table:
Name of Director
H Karuhanga
JB Katto
P Odera
P Mweheire
K Mbathi
S Sejjaaka
J Okot
B Mulwana
P Masambu
R Emunu
5-Feb
√
√
√
√
√
√
√
A
√
6-May
√
√
√
√
√
√
√
A
√
20-Aug
√
√
√
√
√
√
√
√
√
7-Nov
√
√
√
√
√
√
√
√
√
√ = Attendance; A = Apology;
Board effectiveness and evaluation
The Board is committed to continued improvements to its effectiveness
and performance. The Board’s performance and that of its committees
is assessed annually against their respective mandates. The objective of
these evaluations is to assist the Board and committees to constantly
improve their effectiveness by addressing areas needing improvement
and providing directors with the necessary training. The results of this
assessment are then considered by the Board.
The Board assessed its performance and that of its committees in
2014. The evaluations assessed performance in terms of structure,
process and effectiveness. Individual questionnaires were completed,
the results collated, and feedback discussed by the Board.
The relevant action points from the assessments were noted for
implementation. No major areas of concern were highlighted other
than the Board’s increasing information needs due to the changing
regulatory and risk landscape. In 2014, focus was given to meeting
this need through an ongoing board education program which we will
continue into 2015.
The performance of the Chairman and Chief Executive is assessed
annually. In 2014, the performance of individual directors was evaluated
by the Chairman who discussed the results with the relevant directors.
Education and induction
Ongoing board education remains a focus. The directors are kept
abreast of all applicable legislation and regulations, changes to rules,
standards and codes, as well as relevant sector developments, which
could potentially impact the Company and its operations. Additional
time is scheduled outside of board meetings to run dedicated
sessions highlighting key issues for the Board. This program is
supplemented by external courses and on•site visits where relevant.
On appointment, each new director receives an induction pack that
includes all relevant governance information such as mandates,
management structures, significant reports, important legislation
and policies. In addition, one•on•one meetings are scheduled with
management to introduce new directors to the Company and its
operations. The Company Secretary is responsible for the induction and
ongoing education of directors.
Board committees
Board committees operate in terms of mandates reviewed and
approved by the Board on an annual basis. Each committee’s mandate
sets out the role, responsibilities, scope of authority, composition and
46
31 December 2014
procedures to be followed. All board committee mandates are annually
reviewed to take into account amendments to relevant legislation and
other pertinent changes in the operating environment. oversight of risk management within the Company. A number of
management committees help the committee to fulfil its mandate,
the main one of these being the risk management committee.
Board audit committee
To achieve oversight, the committee reviews and assesses the integrity
of risk control systems and ensures that risk policies and strategies
are managed effectively and contribute to a culture of discipline and
control that reduces the opportunity for fraud. Assurance on the
effectiveness of the risk management processes is provided to the
committee through management reporting.
The committee is constituted in terms of the Financial Institutions
Act which requires the Board to appoint at least two non•executive
directors to the committee.
In accordance with the Financial Institutions Act, the Board has
appointed the members of the committee which is comprised solely of
independent non executive directors. Details of the committee, roles,
members and activities during the year are noted below:
The role of this committee is to review the Company’s financial position
and make recommendations to the Board on all financial matters,
risks, internal financial controls, fraud and IT risks relevant to financial
reporting. This includes assessing the integrity and effectiveness
of accounting, financial compliance and other control systems. The
committee has a constructive relationship with the Head: Internal Audit,
who has access to committee members as required. The committee
also ensures effective communication between the internal auditors,
external auditors, the Board, management and regulators.
The committee’s composition includes executive and non•executive
directors. The committee complied with its mandate for the year under
review. Four scheduled meetings were held.
Name of Director
4-Feb
5-May
19-Aug
4-Nov
R Emunu
√
√
√
√
P Mweheire
√
A
A
√
J A Okot
√
√
√
√
P Odera
√
√
√
√
√ = Attendance; A = Apology;
The committee is responsible for, amongst other things, the internal
control framework, which combines the Bank’s three lines of defence
model with the Bank’s corporate governance framework. The three
lines of defence model seeks to separate the relevant duties and ensure
independent reporting lines to underpin effective internal control and
risk management. More detail on the approach to risk management is
provided in the risk review section which starts on page 26.
Internal financial controls are in place to ensure the integrity of the
Bank’s qualitative and quantitative financial information, which is used
by a variety of stakeholders. The Chief Financial Officer is ultimately
responsible for implementing and maintaining internal financial
controls.
Assurance of the effectiveness of internal financial controls is achieved
through management confirmation that the financial governance
controls and internal financial controls supporting the assertions in
the financial statements operated effectively during the year and
coordinated audit work by the internal and external auditors as part of
their annual risk based audit plans.
The committee considers reports from internal audit on any weaknesses
in controls that have been identified, including financial controls, and
considers corrective actions to be implemented by management to
prevent such incidences recurring. This takes place on an ongoing basis.
The audit committee has complied with its mandate in the year
under review, as well as its legal and regulatory responsibilities. Four
scheduled meetings were held.
A comprehensive risk management report is provided starting on page
26. which sets out the framework for risk and capital management in
the Company.
Board credit committee
The role of this committee is to ensure that effective frameworks for
credit governance are in place in the Company. This involves ensuring
that the management credit risk committee and the credit function
operate according to clearly defined mandates and delegated authority,
and providing for the adequate management, measurement, monitoring
and control of credit risk, including country risk.
The committee reports to the Board on credit portfolios, adequacy of
provisions and status of non•performing loans. It does not approve
individual credit applications which remain within the ambit of the
credit risk management committee, credit function and the Board, for
significant facilities. Further detail on the management of credit risk is
set out in the comprehensive risk management report provided starting
on page 26.
The committee’s composition includes an executive and non•executive
directors.
The credit committee complied with its mandate for the year under
review. Four scheduled meetings were held.
Name of Director
5-Feb
5-May
19-Aug
4-Nov
B Mulwana
√
√
√
√
Name of Director
3-Feb
2-May
18-Aug
3-Nov
J A Okot
√
√
√
√
S Sejjaaka
√
√
√
√
P Odera
√
√
√
√
B Mulwana
√
√
√
√
R Emunu
√
√
√
√
√ = Attendance
Board risk management committee
The Board is ultimately responsible for risk management. The main
purpose of the committee is to provide independent and objective
√ = Attendance; A = Apology; • = no longer committee member
Board compensation committee
The role of the compensation committee is to:
•
Provide oversight on the compensation of directors, executive
and senior management and other key personnel and ensure
that the compensation is consistent with the Company’s culture,
objectives, strategy and control environment; and
•
Perform other duties related to the Company’s compensation
structure in accordance with applicable law, rules, policies and
regulations.
The goal of the committee is to maintain compensation policies
which will attract and retain the highest quality executive and senior
managers and which will reward the executives and senior managers
of the Company for the Company’s progress and enhancement of the
shareholder value. In fulfilling its mandate, the committee is guided
by group philosophy and policy as well as by the specific social, legal,
economic context of Uganda.
The committee comprises solely non•executive directors. The Chief
Executive attends the meetings by invitation. Other members of
executive management can be invited to attend when appropriate to
assist the committee in fulfilling its mandate. No individual, irrespective of position, is present when his or her
remuneration is discussed.
Company Secretary
The role of the Company Secretary is to ensure the Board remains
cognisant of its duties and responsibilities. In addition to guiding the
Board on discharging its responsibilities, the Company Secretary keeps
the Board abreast of relevant changes in legislation and governance
best practices. The Company Secretary also oversees the induction of
new directors as well as the ongoing education of directors. To enable
the Board to function effectively, all directors have full and timely access
to information that may be relevant to the proper discharge of their
duties. This includes information such as corporate announcements,
investor communications and other developments which may affect
the bank and its operations. All directors have access to the services
of the secretary.
Going concern
The directors have sufficient reason to believe that the Company has
adequate resources to continue operating as a going concern.
In making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
future projections of profitability, cash flows and capital resources.
Relationship with shareholders
Regular, pertinent communication with shareholders is part of the
Company’s fundamental responsibility to create shareholder value
and improve stakeholder relationships. In addition to the ongoing
engagement facilitated by the investor relations officer, the Chairman
encourages shareholders to attend the annual general meeting where
interaction is welcomed. The other directors are available at the
meeting to respond to questions from shareholders. Voting at general
meetings is conducted by show of hands. The Board proposes separate
resolutions on each issue put forward to shareholders.
In line with cost reduction initiatives, shareholders who still hold shares
in certificated form were encouraged to receive annual and interim
reports and dividend announcements in electronic format.
47
31 December 2014
Remuneration report
The articles of association of the Company require every shareholder to
register his or her address in Uganda with the Company. Shareholders
who still hold shares in certificated form are advised to notify the
Company’s share registrars in writing of any change in their postal or
email addresses or bank account details.
Connecting with stakeholders
February to the publication of final results. During other periods, where
employees are in possession of price sensitive information, closed
periods are imposed on these employees. Compliance with the policies
is monitored on an ongoing basis.
Sustainability
The Company’s relevance to the markets and societies in which we operate
depends on continued and meaningful engagement with all stakeholders.
The Citizenship & sustainability report on pages 32 to 40. aims to
provide a balanced analysis of the Company’s sustainability performance
in relation to issues that are relevant and material to the Company and
to its stakeholders. The report provides: Stakeholder management at the Company involves the optimal
deployment of the organization’s resources to build and maintain good
relationships with stakeholders. This helps the Company to manage
the expectations of society, minimize reputational risk and form strong
partnerships, which all underpin business sustainability.
• Material issues affecting the Company.
• An overview of the Company’s sustainability performance in 2013;
• An overview of stakeholder interaction during the year; and
Stakeholder relationships and related issues are discussed at board
meetings.
Several stakeholder engagement initiatives took place during the year.
More information on these initiatives can be found in the Citizenship &
sustainability Report starting on page 32.
Dealing in securities
In line with its commitment to conducting business professionally and
ethically, the Company has a policy that restricts dealing in securities
by directors and employees. A personal account trading policy and an
insider trading policy are in place to prohibit employees and directors
from trading in securities during closed periods, which are in effect
from 1 June to the publication of the interim results, and from 1
Ethics and organizational integrity
The code of ethics is designed to empower employees and enable
effective decision•making at all levels of our business according to
defined ethical principles. It also aims to ensure that, as a significant
organisation in the financial services industry, we adhere to the highest
standards of responsible business practice. The code interprets and
defines Standard Bank Group (“Group”) and the Company’s values in
greater detail and provides value•based decision•making principles
to guide our conduct. It is aligned with other Company policies and
procedures, and supports the relevant industry regulations and laws.
The code specifies acceptable and unacceptable practices and assists
in making ethical infringement easy to identify. It also promotes
awareness of, and sensitivity to, ethical issues.
The Chief Executive is the formal custodian of the code of ethics and is
ultimately responsible for its implementation.
Ethics incidents are reported via the ethics and fraud hotline, human
resources department, risk department and business unit ethics officers.
Reported incidents include fraud and human resources•related issues.
Overview
The Group Remuneration Committee (Remco), which takes overall
responsibility for remuneration policies and structures within the
Group, invests substantial effort in evaluating and testing the Group’s
remuneration philosophies and structures, and their implementation, in
response to regulatory and governance requirements. All Compensation
Committee decisions are guided by the Company and Group philosophy
and policy, as well as by the specific social, legal and economic context
of the country. Where considered appropriate, Remco and the Compensation
Committee of the Company initiate modifications to remuneration
designs to ensure that regulatory requirements are met and our
remuneration policies are consistent with, and promote effective risk
management.
Remuneration philosophy and policy
The Company is committed to building a leading emerging markets
bank that attracts and retains world•class people. Consequently, we
work to develop a depth and calibre of human resource that is capable
of delivering sustainable growth across multiple geographies, products
and regulatory regimes, and always within our agreed risk tolerance.
At the heart of this commitment lies the value we place on our
people. Therefore, effective management and remuneration
of our talent must be a core competency in our Company.
As an integral part of growing and fortifying our resource of human
skills, the Compensation Committee continually reviews the Company’s
remuneration philosophies, structures and practices.
To determine the remuneration of employees of the Company, the
Compensation Committee reviews market and competitive data, and
considers the Company’s performance against financial objectives and
individual performance. In 2011, Remco and management sought
benchmarking guidance from Hay Group and Global Remuneration
Services (GRS).
Certain specialist departments, for example, human resources and
finance, provide supporting information and documentation relating to
matters considered by the Compensation Committee.
Structure of remuneration for managerial and
general employees
Terms of service
The terms and conditions of employment of all managers and general
employees are guided by local legislation and are aligned to Group
practice. Notice periods are stipulated by legislation and can go up to
three months
Structure of remuneration
Fixed pay
Fixed pay is intended to attract and retain employees by ensuring
competitive positioning in the local market and in certain cases, globally.
Fixed pay is normally reviewed annually, typically in March and market
data is used for benchmarking.
48
31 December 2014
The longer term aim of Remco is to move from a fixed salary and
benefits to a ‘cost to company’ philosophy whereby a cash sum is
delivered from which all benefits are deducted.
Benefits
Benefits are provided in line with market practise and regulatory
requirements. The bank provides medical cover and death benefits for
staff and dependents. In addition, retirement benefits are provided on
a defined contribution basis linked to fixed pay.
Variable pay
Annual incentive
Annual incentives are provided to ensure appropriate reward for
performance. Incentive pools are allocated to teams shaped by a
combination of overall bank and team performance within the set risk
tolerance levels.
Individual awards are based on personal performance, both financial
and non financial. In some cases, a portion of the annual incentive
above a certain threshold is deferred.
Deferral schemes
Deferred bonus scheme (DBS)
The bank has implemented a DBS to compulsorily defer a portion of
incentives over a minimum threshold for some senior managers and
executives. This improves alignment of shareholder and management
interests and enables claw back under certain conditions, supporting
risk management. All employees who are awarded an incentive over
a certain threshold are subject to a mandatory deferral of a certain
percentage of their bonus into the DBS for up to 42 months.
To enhance the retention component of the scheme, additional
increments of the deferred bonus become payable at vesting and one
year thereafter.
Claw back provision
A claw back provision was introduced on the deferred remuneration
plan. A key provision in the plans is that unvested awards may be
reduced or forfeited, in full or in part, at Remco’s discretion subject
to certain conditions and support by the Compensation Committee in
Uganda.
Long term incentives
Share incentive schemes
The Standard Bank Group runs a Standard Bank equity growth scheme
(EGS) and group share incentive scheme (GSIS) to which certain
employees of Stanbic Bank Uganda are eligible to participate in.
Participation rights under the EGS and share options under the GSIS are
granted to qualifying employees. Grants of rights or options are typically
made annually as part of the annual reward review; however grants are
also made to new employees on appointment or as ad hoc awards for
retention purposes. EGS and GSIS long term incentives are awarded to
key talent and are motivated by an individual’s current performance
and future potential. No awards are made to non executive directors.
No participation rights or options are issued at a pricing discount, nor
can they be re-priced, except as provided for in terms of the scheme in
relation to a reduction or re organisation of the issued share capital of
Standard Bank Group.
49
31 December 2014
Remuneration report
Remuneration report (Continued)
Remuneration report (Continued)
The table below sets out the general vesting conditions of the various
options or participating rights issued. The Standard Bank Group
directors have the discretion to vary the vesting categories but not the
expiry periods.
Vesting category
Year
Cumulative
vesting %
Expiry
A
3, 4, 5
50, 75, 100
10 years
B
5, 6, 7
50, 75, 100
10 years
C
2, 3, 4
50, 75, 100
10 years
Terms of employment
Retention agreements
Retention agreements are only entered into in exceptional
circumstances and retention payments have to be repaid should the
individual concerned leave within a stipulated period.
Severance payments
Severance payments are determined by legislation, market practise and
where applicable, agreement with recognised trade unions or employee
forums. It is not the practise of Stanbic Bank Uganda to make substantial
severance awards.
Restrictive covenants
Some executive employment contracts include restrictive covenants on
poaching of employees or customers. No other restraints are included
in contracts at present.
Sign on payments
In attracting key employees it may be necessary to compensate for the
loss of unvested awards with their prior employer. In such cases we
would consider compensating such new employees in the appropriate
share incentive scheme or in certain situations a cash sign on payment
may be made on joining, subject to repayment should the employee
leave the bank within a certain period.
Directors’ remuneration
Remuneration of executive directors
The remuneration packages and long•term incentives for executive
directors are determined on the same basis and using the same
qualifying criteria as for other employees.
The disclosure of the remuneration of the highest paid employees
who are not directors is considered competitor sensitive and after due
consideration, the Board has resolved not to publish the information.
Non executive directors’ remuneration and terms of
engagement Terms of service
All non executive directors are provided with a letter
of appointment setting out the terms of engagement.
In terms of the Companies Act, directors are required to retire at 70.
The shareholders can, by special resolution, extend the term of service.
Directors are appointed by shareholders at the AGM. Between AGMs
interim appointments may be made by the Board. These interim
appointees are required to retire at the following AGM where they then
offer themselves for re-election by shareholders. In addition, one-third
of non executive directors are required to retire at each AGM and may
offer themselves for re election.
If supported by the Board, the Board then proposes their re-election
to shareholders. There is no limitation on the number of times a nonexecutive director may stand for re•election. Proposals for re-election
are based on individual performance and contribution.
Fees
Non•executive directors receive a fee for their service on the Board and
a meeting attendance fee for board committee meeting. Fees are paid
quarterly in arrears.
The table below shows the breakdown of directors’ emoluments:
Directors’ emoluments 2014
Category
Executive directors
Non-executive
directors
Former nonexecutive directors
Total
Services as
Board
Cash portion
Directors
committee fees
of package
UShs ‘000
UShs ‘000
UShs ‘000
- - 1,634,422
425,058
129,856
- Performance Other benefits
Pension
incentives *
contributions
UShs ‘000
UShs ‘000
UShs ‘000
1,147,993 1,444,807 317,254
- - - - - - - - - 425,058 129,856 1,634,422 1,147,993 1,444,807 317,254
Directors’ emoluments 2013 Category
Services as
Board
Directors
committee fees
UShs ‘000
UShs ‘000
Executive directors
- - Non-executive
directors
331,056 169,028
Former nonexecutive directors
- - Total
331,056 169,028
Cash portion
of package
UShs ‘000
1,563,362
- Performance Other benefits
Pension
incentives *
contributions
UShs ‘000
UShs ‘000
UShs ‘000
1,794,295 1,136,941 338,555
- - - - - - - 1,563,362 1,794,295 1,136,941 338,555
Total
UShs ‘000
4,544,475
554,914
- 5,099,390
Total
UShs ‘000
4,833,152
500,084
- 5,333,236
Performance related pay is aligned to the financial year. Performance is assessed at the end of the year and paid in the following year. The amounts
herein are performance awards paid in the current year but relate to performance in the prior year.
There are no contractual arrangements for compensation for loss of
office. Non-executive directors do not receive short-term incentives,
nor do they participate in any long•term incentive schemes. The
Compensation Committee reviews the fees paid to non-executive
directors annually and makes recommendations to the Board for
consideration.
In determining the remuneration of non-executive directors, the Board
considers the extent and nature of their responsibilities, and reviews
of comparative remuneration offered by other major Ugandan and
international banks.
A fee increase has been proposed for approval at the annual general
meeting for the year 2015.
The compensation of the Chief Executive is subject to an annual review
process that includes the Board.
50
31 December 2014
51
31 December 2014
Directors’ report
The directors submit their report together with the audited financial
statements for the year ended 31 December 2014, which disclose the
state of affairs of Stanbic Bank Uganda Limited (“the Bank”).
Principal activities
The Bank is a licensed financial institution under the Financial Institutions Act, 2004 and is a member of the Uganda Bankers Association.
The Bank is engaged in the business of commercial banking and the
provision of related banking services. The Bank is also among the six
primary dealers selected by the Bank of Uganda to deal in Government
of Uganda securities.
Statement of directors’ responsibility
Directors’ interest in shares
At the date of this report, the following directors held directly an interest in the company’s ordinary issued share capital as reflected in the
table below:
Director
Number of Shares
K Mbathi
1,095,000
Total
1,095,000
Insurance
Results
The Bank’s results for the year ended 31 December 2014 are shown in
the income statement on page 56, and a detailed review of the results
for the year is given in the operating and financial review on pages 17
to 19.
The Bank maintained directors and officers’ liability insurance during
the year.
The directors accept responsibility for the financial statements, which have been prepared using appropriate accounting policies supported by
reasonable estimates, in conformity with International Financial Reporting Standards and in a manner required by the Financial Institutions Act 2004
and the Ugandan Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of affairs of the
Bank and of its profit in accordance with International Financial Reporting Standards. The directors further accept responsibility for the maintenance
of accounting records that may be relied upon in the preparation of financial statements and of such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.
Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern for at least twelve months from the date
of this statement.
Events subsequent to balance sheet date
A general review of the business is given by the Chairman and Chief
Executive on pages 11 to 16.
There is no material event that has occurred between the reporting
date and the date of this report that would require adjustment to these
financial statements.
Dividends
Management by third parties
The Directors recommend the payment of final dividend of UShs 85
billion (2013: UShs 80 billion) for the year ended 31 December 2014.
The Ugandan Companies Act requires the directors to prepare financial statements for each financial year that give a true and fair view of the state
of affairs of the Bank as at the end of the financial year and of its profit or loss. It also requires the directors to ensure that the Bank keeps proper
accounting records that disclose, with reasonable accuracy, the financial position of the Bank. They are also responsible for safeguarding the assets
of the Bank.
None of the business of the Bank has been managed by a third person
or a company in which a director has had an interest during the year.
……………………………………...…………………………………….
ChairmanChief Executive
Date: 20th February 2015
By order of the board
Share Capital
The total number of issued ordinary shares as at year end was
51,188,669,700
Directors
The directors who held office during the year and to the date of this
report were:
Japheth Katto - Chairman (Appointed 17 June 2014)
Hannington Karuhanga - Chairman (resigned 17 June 2014)
K Mbathi
- Non-executive Director
S Sejjaaka
B Mulwana
R Emunu
J Okot
P Masambu
- Chief Executive
P Odera
- Out-going Chief Executive
52
Secretary, Board of Directors
(resigned 1 January 2015)
P Mweheire
31 December 2014
___________________________
Brendah N. Mpanga
53
31 December 2014
Report of the independent auditor to the
Members of Stanbic Bank Uganda Limited
Report on the financial statements
We have audited the accompanying financial statements of Stanbic
Bank Uganda Limited (“the Bank”), as set out on pages 56 to 109.
These financial statements comprise the statement of financial position
as at 31 December 2014, the income statement and the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, and a summary of significant accounting policies and other
explanatory notes.
Directors’ responsibility for the financial
statements
The directors are responsible for the preparation of financial statements
that give a true and fair view in accordance with International Financial
Reporting Standards and in the manner required by the Financial
Institutions Act 2004 and the Ugandan Companies Act, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an independent opinion on the financial
statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform our audit to
obtain reasonable assurance that the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgement, including the assessment
of the risks of material misstatement of financial statements, whether
due to fraud or error. In making those risk assessments, the auditor
considers internal controls relevant to the entity’s preparation and
fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Bank’s
internal controls. An audit also involves evaluating the appropriateness
of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Opinion
In our opinion the financial statements give a true and fair view of the
state of affairs of the Bank as at 31 December 2014 and of its profit
and cash flows for the year then ended in accordance with International
Financial Reporting Standards, the Ugandan Companies Act and the
Financial Institutions Act 2004.
Report on other legal and regulatory requirements
The Ugandan Companies Act requires that in carrying out our audit we
consider and report to you on the following matters. We confirm that:
i) we have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes
of our audit;
ii) in our opinion proper books of account have been kept by the
Bank, so far as appears from our examination of those books; and
iii) the Bank’s statement of financial position and income statement
are in agreement with the books of account.
_____________________________
Certified Public Accountants
Kampala, Uganda
Date: 26 March 2015
54
31 December 2014
55
Financial statements
Income statement
Statement of comprehensive income
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expenses
Net fees and commission income
Net trading income
Other operating income
Total Income before credit Impairment charge
Impairment charge for credit losses
Total Income after credit Impairment charge
Employee benefit expenses
Depreciation and amortisation
Income tax expense
Profit for the year
Earnings per share for profit attributable to the equity holders
of the Bank during the year (expressed In UShs per share):
Basic & diluted
56
31 December 2014
Notes
6
7
8
2014 UShs’ 000 313,566,283
(33,371,594)
280,194,689
110,337,906
2013
UShs’ 000
284,985,795
(37,228,207)
247,757,588
101,971,172
8
9
10
11
12
25 & 26
(1,762,480)
108,575,426
104,497,272
963,740
494,231,127
(37,384,417)
456,846,710
(119,523,617)
(15,483,051)
(3,353,123)
98,618,049
99,183,211
1,602,112
447,160,960
(44,932,277)
402,228,683
(104,967,207)
(14,827,291)
13
14
(140,552,116)
181,287,926
(46,208,544)
(147,623,424)
134,810,761
(32,959,234)
135,079,382
101,851,527
15
2.64
2014 2013
Notes
UShs’ 000 UShs’ 000
Profit for the year
Other comprehensive income for the year after tax:
Net (loss) or gain on available for sale financial assets
Total comprehensive income for the year
135,079,382 101,851,527
28 (3,757,585) 2,049,315
131,321,797 103,900,842
1.99
57
31 December 2014
58
31 December 2014
486,969,534
354,326,635 84,973,192 3,589,996 (7,108,959) 51,188,670 (50,011,330)
350,570
(11,330)
4,686,514
350,570
(84,973,192)
(50,000,000)
84,973,192
(4,686,514)
-
UShs’ 000
405,308,497
135,079,382
(3,757,585)
131,321,797
28
29
40
36
Balance at 31 December 2014
………………………………………… ………………………………………….
Director
Company Secretary
Dividend paid
Statutory credit risk reserve
Equity-settled share-based payment transactions
Proposed dividend
…………………………………………
…………………………………………
ChairmanChief Executive
Transactions with owners recorded directly in equity
The financial statements were approved for issue by the Board of Directors on 20 February 2015 and signed on its behalf by:
299,194,691
135,079,382
135,079,382
3,241,598,040
50,000,000
3,507,762,015
8,276,510
1,521,864
1,787,577,713
238,472,365
638,486,748
18,840,955
103,578,230
47,811,668
2,836,289,543
(3,351,374)
(3,757,585)
(3,757,585)
66,740
2,132,356,040
162,603,909
575,847,246
14,067,737
116,306,610
19,544,199
3,020,792,481 51,188,670
51,188,670
(3,351,374)
8,276,510
299,194,691
50,000,000
405,308,497
Total comprehensive income for the period
51,188,670
(7,108,959)
3,589,996
354,326,635
84,973,192
486,969,534 Profit for the year
Net change in available for sale investments
Total equity and liabilities
3,241,598,040
At 1 January 2014
Liabilities
Derivative liabilities
Deposits from customers
Deposits from banks
Amounts due to group companies
Borrowed funds
Other liabilities
Subordinated debt
3,507,762,015 UShs’ 000
27
28
29
36
30
31
32
39
33
34
35
421,381,332
129,020
340,221,294
618,069,090
1,851,658
181,124,853
148,418,567
1,415,040,925
1,146,198
10,708,472
52,005,348
129,674
7,549,346
4,031,905
39,790,358
UShs’ 000
Total assets
Shareholders’ equity and liabilities
Ordinary share capital
Available for sale revaluation reserve
Retained earnings
Proposed dividends
683,031,136
3,390,164
257,521,935
516,544,808
1,223,458
267,399,603
31,931,847
1,618,379,655
1,144,379
12,058,692
54,838,776
119,336
9,033,065
3,439,930
47,705,231
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000 UShs’ 000
Notes
16
30
17
17
18
19
39
20
21
14
24
23
22
25
26
Retained
earnings
Assets
Cash and balances with Bank of Uganda
Derivative assets
Government securities - held for trading
Government securities - available for sale
Pledged assets
Loans and advances to banks
Amounts due from group companies
Other investments
Current income tax recoverable
Other assets
Prepaid operating leases
Deferred income tax asset
Goodwill and other intangible assets
Proposed
dividends
2013
Statutory
Credit Risk
Reserve
2014 Available for
sale revaluation
reserve
Share capital
Notes
Statement of changes in equity
Total
59
31 December 2014
60
405,308,497
299,194,691
51,188,670
(3,351,374)
8,276,510
50,000,000
(100,000,000)
368,369
(30,000,000)
7,088,746
368,369
(50,000,000)
-
-
Cash flows from operating activities
Interest received
Interest paid
Net fees and commissions received
Net trading and other Income/recoveries
Cash payment to employees and suppliers
Cash flows from operating activities before changes
in operating assets & Liabilities
Changes in operating assets & liabilities
Income tax paid
(Increase)/decrease in derivative assets
Increase in government securities - available for sale
(Decrease)/increase in government securities - trading
Decrease in pledged assets
(Increase)/decrease in cash reserve requirement
Increase in loans and advances to customers
(Increase)/decrease in other assets
(Increase)/decrease in customer deposits
(Decrease)/increase in deposits and balances due to other banks
(Decrease)/increase in deposits from group companies
(Decrease) / increase in derivative liabilities
(Increase)/decrease in other liabilities
Net cash from / (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of computer software
Proceeds from sale of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to shareholders
Decrease in borrowed funds
Decrease in subordinated debt
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Notes
2014 UShs’ 000
2013
UShs’ 000
305,378,163
(33,313,459)
108,561,613
120,367,546
(253,266,706)
292,241,673
(39,568,062)
98,669,906
115,588,763
(248,709,669)
247,727,157
218,222,611
14
(47,432,090)
(3,261,144)
(18,439,750)
82,699,359
628,200
(26,460,000)
(247,184,666)
(2,817,796)
344,720,192
(75,868,456)
(62,639,502)
(1,455,124)
6,280,260
196,496,640
(35,770,231)
903,412
(290,845,879)
(65,254,812)
799,893
30,210,000
(21,910,913)
13,577,516
(309,262,550)
204,515,322
293,632,144
1,521,864
(45,680,718)
(5,342,341)
26
(23,403,913)
341,070
(23,062,843)
(13,283,444)
(126,807)
357,340
(13,052,911)
(50,011,330)
(4,773,218)
(28,267,469)
(83,052,017)
90,381,780
760,967,971
(100,000,000)
(5,862,524)
(1,300,847)
(107,163,371)
(125,558,623)
886,526,594
851,349,751
760,967,971
Cash and cash equivalents at end of the year
38
Balance at 31 December 2013
Transactions with owners recorded directly in equity
Dividend paid
Equity-settled share-based payment transactions
Proposed dividend
Total comprehensive income for the period
29
40
36
-
(7,088,746)
-
(70,000,000)
50,000,000
103,900,842
101,851,527
2,049,315
-
-
-
101,851,527
2,049,315
101,851,527
-
31 December 2014
Profit for the year
Net change in available for sale investments
28
-
2,049,315
-
401,039,286
269,886,049
51,188,670
(5,400,689)
15,365,256
70,000,000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
At 1 January 2013
Statement of changes in equity (continued)
Notes
UShs’ 000
Statutory
Credit Risk
Reserve
Share capital
Available for
sale revaluation
reserve
Proposed
dividends
Retained
earnings
Total
Statement of cash flows
61
31 December 2014
Notes
Notes
1. General Information
2. Summary of significant accounting policies (Continued)
Stanbic Bank Uganda Limited provides Personal, Business, Corporate
and Investment Banking services in Uganda. The Bank is a limited
liability company and is incorporated and domiciled in Uganda. The
address of its registered office is:
New and amended standards adopted by the Bank
IFRS 10 and IAS 28 Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
(Annual periods beginning on or after 1 January 2016) The bank
has early adopted this standard
Plot 17 Hannington Road
Short Tower - Crested Towers
P O Box 7131 Kampala
The amendments address an inconsistency between the requirements
in IFRS 10 and those in IAS 28, in dealing with the sale or contribution
of assets between an investor and its associate or joint venture.
The Bank’s shares are listed on the Uganda Securities Exchange (USE).
For Ugandan Companies Act reporting purposes, the balance sheet is
represented by the statement of financial position and the profit and
loss account by the income statement in these financial statements.
2. Summary of significant accounting policies
The main consequence of the amendments is that a full gain or loss is
recognised when a transaction involves a business (whether it is housed
in a subsidiary or not). A partial gain or loss is recognised when a
transaction involves assets that do not constitute a business, even if
these assets are housed in a subsidiary.
The amendments will be applied prospectively and have no impact on
the banks financial statements.
The principal accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been
consistently applied to all years presented, unless otherwise stated.
IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’
(applicable for annual periods beginning on or after 1 January
2014)
a) Basis of Preparation
The amendments to IAS 32 clarify the requirements relating to the
offset of financial assets and financial liabilities. Specifically the
meaning of ‘currently has legal enforceable rights of set off’ to include
not contingent on a future event and enforceable both in the normal
course of business and in the event of default, insolvency or bankruptcy
of an entity and all counter parties and ‘simultaneous realisation and
settlement’ to clarify that only gross settlement mechanisms with
features that eliminate or result in insignificant credit and liquidity risk
and that process receivables and payables in a single settlement
process or cycle would be, in effect, equivalent to net settlement and,
therefore, meet the net settlement criterion.
The annual financial statements are prepared in compliance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB), its interpretations
adopted by the IASB as well as the Uganda listing requirements and
Companies Act 2012. The financial statements are presented in the
functional currency, Uganda Shillings (UShs), rounded to the nearest
thousand, and prepared under the historical cost convention except for
assets and liabilities held for trading, financial instruments designated
at fair value through profit or loss; liabilities for cash-settled sharebased payment arrangements and available-for-sale financial assets
that are measured at fair value.
The preparation of the financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
The following principle accounting policy elections in terms of IFRS
have been made, with reference to the detailed accounting policies
shown in brackets:
Purchases and sales of financial assets under a contract whose
terms require delivery of the asset within the time frame established
generally by regulation or convention in the marketplace concerned
are recognised and derecognised using trade date accounting
(accounting policy (i));
The portfolio exception to measure the fair value of certain groups
of financial assets and financial liabilities on a net basis (accounting
policy (i)).
Intangible assets and property and equipment are accounted for
using the cost model (accounting policy K and U)
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
Information about significant areas of estimation uncertainty and
critical judgements in applying accounting policies that have the most
significant effect on the amounts recognised in the financial statements
are described in notes 4.
62
31 December 2014
The standard requires retrospective application and has no impact on
the bank’s financial statements.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
(Effective for annual periods beginning on or after 1 January 2014).
The amendments to IAS 36 clarify the disclosure requirements in
respect of fair value less costs of disposal. The amendments remove the
requirement to disclose the recoverable amount for each cashgenerating unit (CGU) for which the carrying amount of goodwill or
intangible assets with indefinite useful lives had been allocated when
there has been an impairment or reversal of impairment of the related
to the CGU or intangible asset. It further introduces additional
disclosure requirements applicable to when the recoverable amount of
an asset or a CGU is measured at fair value less cost of disposal. These
include the fair value hierarchy, key assumptions and valuation
techniques used which are in line with the disclosure requirement by
IFRS 13 fair value measurement. The amendments require retrospective
application. The standard has no impact on the bank’s financial
statement.
Amendments to IAS 39 Novation of Derivatives and Continuation
of Hedge Accounting (Effective for annual periods beginning or
after 1 January 2014)
The amendments to IAS 39 provide relief from the requirement to
discontinue hedge accounting when a derivative designated as a
hedging instrument is novated under certain circumstances.
The amendments also clarify that any change to the fair value of the
derivative designated as a hedging instrument arising from the
novation should be included in the assessment and measurement of
hedge effectiveness. The amendment requires retrospective application
and have no impact on the bank’s financials.
A loss allowance for full lifetime expected credit losses is required for a
IFRIC 21 Levies (effective for annual periods beginning 1 January
2014) financial instrument if the credit risk of that financial instrument has
IFRIC 21 addresses the issue of when to recognize a liability to pay a
levy. The standard specifies that the obligating event that gives rise to
the liability is the activity that triggers the payment of the levy, as
identified by legislation. The interpretation provides guidance on how
different levy arrangements should be accounted for, in particular, it
clarifies that neither economic compulsion nor the going concern basis
of financial statements preparation implies that an entity has a present
obligation to pay a levy that will be triggered by operating in a future
period. IFRIC 21 requires retrospective application.
increased significantly since initial recognition as well as for certain
contract assets or trade receivables. For all other financial instruments,
expected credit losses are measured at an amount equal to 12-month
expected credit losses.
The bank is currently not subjected to significant levies, so the impact
of this standard to the bank is not material.
While adoption of IFRS 9 is mandatory from 1 January 2018, earlier
adoption is permitted. The Bank is considering the implications of the
Standard, the impact on the Bank and the timing of its adoption.
Standards and interpretations issued but not yet effective
IFRS 9, ‘Financial instruments’ (applicable beginning on or after 1
January 2018)
IFRS 7, ‘Financial instruments:Disclosures - Servicing Contracts ’
(applicable beginning on or after 1 January 2016
IFRS 9 issued in July 2014 as a complete standard and replaces IAS
39 Financial instruments; recognition and measurement of financial
instruments and all previous versions of IFRS9. The standard introduces
new requirements for the classification and measurement, impairment
and hedged accounting. Key features are as follows:
Financial assets are required to be classified into two measurement
categories: those to be measured subsequently at fair value, and
those to be measured subsequently at amortised cost. The decision
is to be made at initial recognition. The classification depends on
the entity’s business model for managing its financial instruments
and the contractual cash flow characteristics of the instrument.
An instrument is subsequently measured at amortised cost only if
it is a debt instrument and both the objective of the entity’s
business model is to hold the asset to collect the Contractual cash
flows, and the asset’s contractual cash flows represent only
payments of principal and interest (that is, it has only ‘basic loan
features’). All other debt instruments are to be measured at fair
value through the income statement.
All equity instruments are to be measured subsequently at fair
value. Equity instruments that are held for trading will be measured
at fair value through profit or loss. For all other equity investments,
an irrevocable election can be made at initial recognition, to
recognise unrealised and realised fair value gains and losses
through other comprehensive income rather than profit or loss.
There is to be no recycling of fair value gains and losses to profit or
loss. This election may be made on an instrument-by-instrument
basis. Dividends are to be presented in profit or loss, as long as
they represent a return on investment.
Under the new standard, entities with financial liabilities at fair value
through profit or loss recognise changes in the liability’s credit risk
directly in other comprehensive income. There is no subsequent
recycling of the amounts in other comprehensive income to profit or
loss, but accumulated gains or losses may be transferred within equity.
The standard introduces a new expected-loss impairment model that
will require more timely recognition of expected credit losses. This new
model will apply to financial assets measured at either amortised cost
or fair value through OCI, as well as loan commitments when there is
present commitment to extend credit unless these are measured at fair
value through profit or loss.
With the exception of purchased or originated credit impaired financial
assets, expected credit losses are required to be measured through a
loss allowance at an amount equal to either 12-month expected credit
losses or full lifetime expected credit losses.
The revised general hedge accounting requirements are better aligned
with an entity’s risk management activities and provides additional
opportunities to apply hedge accounting and various simplifications in
achieving hedge accounting.
The standard relate to when an entity transfers a financial asset, and
may retain the right to a servicing contract for a fee. The entity assesses
the servicing contract in accordance with the guidance provided to
decide whether the entity has continuing involvement as a result of the
servicing contract for the purposes of the disclosure requirements.
The amendment will be applied retrospectively and the impact on the
banks financial statements is yet to be fully determined
IFRS 15, ‘Revenue from Contracts with Customers’(applicable
beginning on or after 1 January 2017
This standard will replace the existing revenue standards and their
related interpretations. The standard sets out the requirements for
recognising revenue that applies to all contracts with customers except
for contracts that are within the scope of the standards on leases,
insurance contracts or financial instruments.
The core principle of the standard is that revenue recognised reflects
the consideration to which the company expects to be entitled in
exchange for the transfer of promised goods or services to the
customer.
The standard incorporates a five step analysis to determine the amount
and timing of revenue recognition which include.
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the
contract
Recognise revenue when (or as) the entity satisfies a performance
obligation
The standard will be applied retrospectively. The impact on the banks
financial statements has yet been fully determined
There are no other IFRSs or IFRIC interpretations that are not yet
effective that would have a material impact on the financial statements
of the Bank.
b) Interest income and expense
Interest income and expense are recognised in the income statement
on an accrual basis for all interest bearing financial instruments, except
for those classified at fair value through profit or loss using the
effective interest method.
The effective interest method is a method of calculating the amortised
cost of a financial asset or a financial liability and of allocating the
interest income or interest expense over the relevant period. The
63
31 December 2014
Notes
Notes
effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the
financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability. The
calculation includes all fees paid or received between parties to the
contract that are an integral part of the effective interest rate,
transaction costs and all other premiums or discounts.
In accordance with IFRS 8, the Bank has the following business
segments: Personal and Business Banking, Corporate and Investment
Banking and Treasury and Capital management. The Transactions
between segments are priced at market related rates.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, other
than:
h) Foreign currency translation
(a) those that the entity intends to sell immediately or in the short
Interest income and expense presented in the income statement
include interest on financial assets and financial liabilities measured at
amortised cost calculated on an effective interest basis.
Items included in the Bank’s financial statements are measured using
the currency of the primary economic environment in which the entity
operates, Uganda shillings (“the functional currency”). The financial
statements are presented in Uganda shillings (UShs) and figures are
stated in thousands of UShs unless otherwise stated.
When loans and advances become doubtful of collection, they are
written down to their recoverable amounts and interest income is
thereafter recognised based off the original effective interest rate that
is used to discount the future cash flows for the purpose of measuring
the recoverable amount.
Fair value gains and losses on realised debt financial instruments,
including amounts reclassified from OCI in respect of available-for-sale
debt financial assets, and excluding those classified as held-for-trading,
are included in net interest income
c) Fees and commission
Fees and commission income and expense that are integral to the
effective interest rate on a financial asset or liability are included in the
measurement of the effective interest rate. Loan commitment fees for
loans that are likely to be drawn down are deferred (together with
related direct costs) and recognised over the life of the loan.
Fees and commissions are generally recognised on an accrual basis
when the service has been provided.
d) Net trading revenue
Net trading revenue comprises gains or losses related to trading assets
and liabilities, and include all realised and unrealised fair value changes,
interest and foreign exchange differences.
e) Net income from other financial instruments at fair
value through profit or loss
Net income from other financial instruments at fair value through
income statement relates to non-trading derivatives held for risk
management purposes that do not form part of a qualifying hedge
relationship and financial assets and liabilities designated at fair value
through the income statement, and include all realised and unrealised
fair value changes, interest and foreign exchange differences.
f) Dividends
Dividend income is recognised when the right to receive income is
established. Usually this is the ex-dividend date for equity securities.
Dividends are reflected as a component of other operating income
based on the underlying classification of the equity investment.
g) Segment reporting
An operating segment is a distinguishable component of the Bank
engaged in providing products or services that are subject to risks and
returns that are different from those of other business segments and
whose operating results are reviewed to assess its performance and for
which discrete financial information is available. The Bank’s primary
business segmentation is based on the Bank’s internal reporting about
components of the Bank as regularly reviewed by the board and
executive management committees. Segments results include items
directly attributable to a segment as well as those that are allocated on
a reasonable basis. Business segments are the only segments presented
since the Bank operates in a single geographical segment, Uganda.
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31 December 2014
i. Functional and presentation currency
ii. Loans, advances and receivables
term, which are classified as held for trading, and those that the
entity upon initial recognition designates as at fair value through
profit or loss;
(b) those that the entity upon initial recognition designates as available
for sale; or
(c) those for which the holder may not recover substantially all of its
ii. Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions.
Monetary items denominated in foreign currency are translated with
the closing rate as at the reporting date. If several exchange rates are
available, the forward rate is used at which the future cash flows
represented by the transaction or balance could have been settled if
those cash flows had occurred.Non-monetary items measured at
historical cost denominated in a foreign currency are translated with the
exchange rate as at the date of initial recognition; non-monetary items
in a foreign currency that are measured at fair value are translated
using the exchange rates at the date when the fair value was
determined.
Foreign exchange gains and losses resulting from the settlement of
foreign currency transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in profit or loss.
Changes in the fair value of monetary assets denominated in foreign
currency classified as available-for-sale are analyzed between
translation differences resulting from changes in the amortized cost of
the security and other changes in the carrying amount of the security.
Translation differences related to changes in the amortized cost are
recognized in profit or loss, and other changes in the carrying amount,
are recognized in other comprehensive income.
Translation differences on non-monetary financial instruments, such as
equities held at fair value through profit or loss, are reported as part of
the fair value gain or loss. Translation differences on non-monetary
financial instruments, such as equities classified as available-for-sale
financial assets, are included in other comprehensive income.
i) Financial assets & Liabilities
The Bank classifies its financial assets into the following categories:
financial assets at fair value through profit or loss; loans, advances and
receivables; held-to-maturity investments; and available-for-sale
financial assets and liabilities. Management determines the appropriate
classification of its investments at initial recognition.
i. Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading,
and those designated at fair value through profit or loss at inception. A
financial asset is classified in this category if acquired principally for the
purpose of selling in the short term or if so classifying eliminates or
significantly reduces a measurement inconsistency. Derivatives are also
categorised as held for trading or designated at fair value through profit
or loss at inception.
initial investment, other than because of credit deterioration.
Loans and receivables are initially recognised at fair value – which is the
cash consideration to originate or purchase the loan including any
transaction costs – and measured subsequently at amortised cost using
the effective interest method. Loans and receivables are reported in
the statement of financial position as loans and advances to banks or
customers or as investment securities. Interest on loans is included in
the income statement and is reported as ‘Interest income’.
In the case of impairment, the impairment loss is reportedas a deduction
from the carrying value of the loan and recognised in the income
statement as ‘Impairment charge for credit losses’.
iii. Held-to maturity
Held-to-maturity investments are non-derivative financial assets with
fixed or determinable payments and fixed maturities that management
has the positive intention and ability to hold to maturity. Were the Bank
to sell more than an insignificant amount of held-to-maturity assets, the
entire category would have to be reclassified as available for sale.
iv. Available-for-sale
Available-for-sale financial assets are financial assets that are intended
to be held for an indefinite period of time, which may be sold in
response to needs for liquidity or changes in interest rates, exchange
rates or equity prices orthose that are non-derivative financial assets
that are not classified under any of the categories (i) to (iii) above.
for-sale equity instruments are recognised in the income statement
when the Bank’s right to receive payment is established.
Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm’s
length transaction on the measurement date.
When available, the Bank measures the fair value of an instrument
using quoted prices in an active market for that instrument. A market is
regarded as active if quoted prices are readily and regularly available
and represent actual and regularly occurring market transactions on an
arm’s length basis.
If a market for financial instrument is not active, the Bank establishes
fair value using a valuation technique. Valuation techniques include
using recent arm’s length transactions between knowledgeable, willing
parties (if available), reference to the current fair value of other
instruments that are substantially the same, discounted cash flow
analyses and option pricing models.
Financial assets that are transferable to a third party but do not qualify
for de-recognition are presented in the statement of financial position
as ‘Pledged assets’.
Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which
the financial asset or liability is measured at initial recognition, minus
principal repayments, plus or minus the cumulative amortisation using
the effective interest method of any difference between the initial
amount recognised and the maturity amount, minus any reduction for
impairment.
v. De-recognition
The bank derecognises a financial asset when the contractual rights to
the cash flows from the financial asset expire, or when it transfers the
financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred or in which
the bank neither transfers nor retains substantially all the risks and
rewards of ownership and it does not retain control of the financial
asset.
Purchases and sales of financial assets at fair value through profit or
loss, held-to-maturity and available-for-sale are recognised on tradedate – the date on which the Bank commits to purchase or sell the
asset. Financial assets are initially recognised at fair value plus, for all
financial assets except those carried at fair value through profit or loss,
transaction costs.
Any interest in transferred financial assets that qualify for derecognition that is created or retained by the bank is recognised as a
separate asset or liability in the statement of financial position. On derecognition of a financial asset, the difference between the carrying
amount of the asset (or the carrying amount allocated to the portion of
the asset transferred), and consideration received (including any new
asset obtained less any new liability assumed) is recognised in profit or
loss.
Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or where the Bank has transferred
substantially all risks and rewards of ownership.
vi. Offsetting
Loans, advances and receivables and held-to-maturity investments are
carried at amortised cost using the effective interest method. Availablefor-sale financial assets and financial assets at fair value through profit
or loss are carried at fair value. Gains and losses arising from changes in
the fair value of ‘financial assets at fair value through profit or loss’ are
included in the income statement in the period in which they arise.
Gains and losses arising from changes in the fair value of available-forsale financial assets are recognised directly in equity until the financial
asset is derecognised or impaired, at which time the cumulative gain or
loss previously recognised in equity is recognised in the income
statement. However, interest calculated using the effective interest
method is recognised in the income statement. Dividends on available-
Income and expenses are presented on a net basis only when permitted
under IFRSs, or for gains and losses arising from a group of similar
transactions such as in the bank’s trading activity.
Financial assets and liabilities are offset and the net amount presented
in the statement of financial position when, and only when, the bank
has a legal right to set off the recognised amounts and it intends either
to settle on a net basis or to realise the asset and settle the liability
simultaneously.
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31 December 2014
Notes
Notes
j) Impairment of financial assets
Assets carried at amortised cost
The Bank assesses at each statement of financial position date whether
there is objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred if, and only if, there is
objective evidence of impairment as a result of one or more events that
occurred after initial recognition of the asset (a “loss event”) and that
loss event (or events) has an impact on the estimated future cash flows
of the financial asset or group of financial assets that can be reliably
estimated. Objective evidence that a financial asset or group of assets
is impaired includes observable data that comes to the attention of the
Bank about the following loss events:
significant financial difficulty of the issuer or obligor;
a breach of contract, such as default or delinquency in interest or
principal repayments;
the Bank granting to the borrower, for economic or legal reasons
relating to the borrower’s financial difficulty, a concession that the
lender would not otherwise consider;
it becoming probable that the borrower will enter bankruptcy or
other financial reorganisation;
The disappearance of an active market for that financial asset
because of financial difficulties; or
The calculation of the present value of the estimated future cash flows
of a collateralised financial asset reflects the cash flows that may result
from foreclosure less costs for obtaining and selling the collateral,
whether or not foreclosure is probable.
When a loan is uncollectible, it is written off against the related
provision for loan impairment. Such loans are written off after all the
necessary procedures have been completed and the amount of the loss
has been determined. Subsequent recoveries of amounts previously
written off decrease the amount of the provision for loan impairment in
the income statement.
Financial liabilities
In addition to the measurement of impairment losses on loans and
advances in accordance with the International Financial Reporting
Standards as set out above, the Bank is also required by the Financial
Institutions Act (FIA) 2004 to establish minimum provisions for losses
on loans and advances as follows
k) Property and equipment
i) A specific provision for those loans and advances considered to be
non-performing based on criteria and classification of such loans
and advances established by the Bank of Uganda, as;
a) substandard assets being facilities in arrears between 91 and
180 days – 20%;
b) doubtful assets being facilities in arrears between 181 days and
360 days – 50%;
c) loss assets being facilities in arrears between over 360 days –
100%; and
• Adverse changes in the payment status of borrowers in the
group; or
defaults on the assets in the group.
The Bank first assesses whether objective evidence of impairment
exists individually for financial assets that are individually significant,
and individually or collectively for financial assets that are not
individually significant. If the Bank determines no objective evidence
of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial
assets with similar credit risk characteristics and collectively assesses
them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be
recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans or heldto-maturity investments carried at amortised cost has been incurred,
the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash
flows
(excluding future credit losses that have not been incurred) discounted
at the financial instrument’s original effective interest rate. The
carrying amount of the asset is reduced through the use of an
allowance account and the amount of the loss is recognised in the
income statement. If a loan or held-to-maturity investment has a
variable interest rate, the discount rate for measuring any impairment
loss is the current effective interest rate determined under the
contract. As a practical expedient, the Bank may measure impairment
on the basis of an instrument’s fair value using an observable market
price.
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31 December 2014
If, in a subsequent period, the amount relating to impairment loss
decreases and the decrease can be linked objectively to an event
occurring after the write-down, the write-down is reversed through the
income statement.
If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after
the impairment was recognised (such as an improvement in the
debtor’s credit rating), the previously recognised impairment loss is
reversed by adjusting the allowance account. The amount of the
reversal is recognised in the income statements.
Observable data indicating that there is a measurable decrease in
the estimated future cash flows from a group of financial assets
since the initial recognition of those assets, although the decrease
cannot yet be identified with the individual financial assets in the
group, including:
• National or local economic conditions that correlate with
previously recognised directly in equity as a reduction in fair value, the
cumulative net loss that had been recognised in equity is transferred to
the income statement and is recognised as part of the impairment loss.
The amount of the loss recognised in the income statement is the
difference between the acquisition cost and the current fair value, less
any previously recognized impairment loss.
ii) A general provision of at least 1% of their total outstanding credit
facilities net of specific provisions and interest in suspense.
Where provisions for impairment of loans and advances determined
in accordance with the Financial Institutions Act 2004 exceed
amounts determined in accordance with International Financial
Reporting Standards, the excess is taken to the statutory credit risk
reserve as an appropriation of retained earnings. Otherwise no
further accounting entries are made.
The Bank’s holding in financial liabilities represents mainly deposits
from banks and customers and other liabilities. Such financial liabilities
are initially recognized at fair value and subsequently measured at
amortized cost.
Recognition and measurement
Items of property and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets includes the
cost of materials and direct labour, any other costs directly attributable
to bringing the assets to a working condition for their intended use, the
costs of dismantling and removing the items and restoring the site on
which they are located and capitalised borrowing costs. Purchased
software that is integral to the functionality of the related equipment is
capitalised as part of that equipment.
When parts of an item of property or equipment have different useful
lives, they are accounted for as separate items (major components) of
property and equipment.
Items of property and equipment are derecognised on disposal or when
no future economic benefits are expected from their use or disposal.
The gain or loss on disposal of an item of property and equipment is
determined by comparing the proceeds from disposal with the carrying
amount of the item of property and equipment, and are recognised net
within other income in profit or loss.
Subsequent costs
Renegotiated loans
Loans that would otherwise be past due or impaired and whose terms
have been renegotiated and exhibit the characteristics of a performing
loan are reset to performing loan status. Loans whose terms have been
renegotiated are subject to ongoing review to determine whether they
are considered to be impaired or past due.
The effective interest rate of renegotiated loans that have not been
derecognised is redetermined based on the loan’s renegotiated terms.
Assets carried at fair value
Available-for-sale financial assets are impaired if there is objective
evidence of impairment, resulting from one or more loss events that
occurred after initial recognition but before the statement of financial
position date, that have an impact on the future cash flows of the asset.
In addition, an available-for-sale equity instrument is generally
considered impaired if a significant or prolonged decline in the fair
value of the instrument below its cost has occurred. Where an
available-for-sale asset, which has been re-measured to fair value
directly through equity, is impaired, the impairment loss is recognised
in the income statement. If any loss on the financial asset was
The cost of replacing a part of an item of property or equipment is
recognised in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Bank
and its cost can be measured reliably.
The carrying amount of the replaced part is derecognised. The costs of
the day-to-day servicing of property and equipment are recognised in
profit or loss as incurred.
Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over
the estimated useful lives of each part of an item of property and
equipment since this most closely reflects the expected pattern of
consumption of the future economic benefits embodied in the asset.
Leased assets under finance leases are depreciated over the shorter of
the lease term and their useful lives. Land is not depreciated.
The estimated useful lives for the current and comparative periods are
as follows:
Leasehold buildings
Furniture & fittings
Motor vehicles
Other computer equipment
Laptops and personal computers
Office equipment
over the shorter period of
lease or 50 years
5 years
5 years
5 years
4 years
8 years
Depreciation methods, useful lives and residual values are reassessed
at each financial year-end and adjusted if appropriate
l) Impairment of non-financial assets
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, impairment losses recognised in prior periods
are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable
amounts.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
m) Income tax
Income tax expense is the aggregate of the charge to the income
statement in respect of current income tax and deferred income tax.
Current tax is determined for current period transactions and events
and deferred tax is determined for future tax consequences
Current income tax is the amount of income tax payable on the taxable
profit for the year determined in accordance with the Ugandan Income
Tax Act.
Deferred income tax is provided in full, using the liability method, for
all temporary differences arising between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes.
However, if the deferred income tax arises from the initial recognition
of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor
taxable profit nor loss, it is not accounted for.
Deferred income tax is determined using tax rates that have been
enacted or substantively enacted at the statement of financial position
date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is
probable that future taxable profits will be available against which
temporary differences can be utilised.
Deferred tax related to fair value re-measurement of available –for-sale
investments are credited or charged directly to equity.
n) Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise balances with less than three months’ maturity
from the date of acquisition, including cash and non-restricted balances
with central banks, treasury bills and other eligible bills, loans and
advancesto banks, amounts due from other banks and government
securities.
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31 December 2014
Notes
Notes
o) Accounting for leases
(iv) Share based payment transactions
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating leases.
Leases where the lessee assumes substantially all the risks and rewards
incidental to ownership are classified as finance leases. Similarly leases
of assets under which the lessor retains a significant portion of the risks
and rewards of ownership are classified as operating leases
The grant date fair value of equity-settled share-based payment
awards (i.e. stock options) granted to employees is recognised as an
employee expense, with a corresponding increase in equity, over the
period in which the employees unconditionally become entitled to the
awards. The amount recognised as an expense is adjusted to reflect the
number of share awards for which the related service and non-market
performance vesting conditions are expected to be met such that the
amount ultimately recognised as an expense is based on the number of
share awards that do meet the related service and non-market
performance conditions at the vesting date. For share-based payment
awards with non-vesting conditions, the grant-date fair value of the
share-based payment is measured to reflect such conditions and there
is no true-up for differences between expected and actual outcomes.
The estimate of the number of options/shares expected to vest is
reassess and adjusted against p/l and equity over the remaining vesting
period. Also include the accounting treatment upon vesting and
settlement of shares/options.
(a) With the Bank as lessee
To date, all leases entered into by the Bank are operating leases.
Payments made under operating leases are charged to the income
statement on a straight-line basis over the period of the lease. Lease
incentives received are recognised as an integral part of the total lease
expense, over the term of the lease.
(b) With the Bank as lessor
When assets are leased out under a finance lease, the present value of
the lease payments is recognised as a receivable. The difference
between the gross receivable and the present value of the receivable
is recognised as unearned finance income. Lease income is recognised
over the term of the lease using the net investment method (before
income tax), which reflects a constant periodic rate of return.
p) Employee benefits
(i) Retirement benefit obligations
The Bank operates a defined contribution pension scheme for its
employees. The defined contribution plan is a pension plan under which
the Bank pays fixed contributions into a fund managed by a board of
trustees and will have no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all
employees benefits relating to employee service in the current and
prior periods.
In addition all employees are obliged to be members of the National
Social Security Fund, a state managed defined contribution pension
scheme. The Bank contributes to the scheme in line with the
requirements of the National Social Security Fund Act.
The regular contributions by the Bank and employees constitute net
periodic costs for the year in which they are due and as such are
included in employee benefit expenses.
The Bank’s contributions to the defined contribution schemes are
charged to the income statement in the year to which they relate.
(ii) Short term benefits
Short term benefits consist of salaries, accumulated leave payments,
bonuses and any non-monetary benefits such as medical aid
contributions. Short-term employee benefit obligations are measured
on an undiscounted basis and are expenses as the related service is
provided. A liability is recognised for the amount expected to be paid
under short term cash bonus plans or accumulated leave if the Bank has
a present legal or constructive obligation to pay this amount as a result
of past service provided by the employee and the obligation can be
estimated reliably.
(iii) Termination benefits
Termination benefits are recognised as an expense when the Bank is
committed without realistic possibility of withdrawal, to a formal
detailed plan to terminate employment before the normal retirement
date, or to provide termination benefits as a result of an offer made to
encourage voluntary redundancy. Termination benefits for voluntary
redundancies are recognised if the Bank has made an offer encouraging
voluntary redundancy, it is probable that the offer will be accepted, and
the number of acceptances can be reliably estimated.
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31 December 2014
(v) Other entitlements
The estimated monetary liability for employees’ accrued annual leave
entitlement at the reporting date is recognised as an expense accrual.
q) Derivative financial instruments
Derivatives, which comprise forward foreign exchange contracts and
swaps, are initially recognised at fair value on the date the derivative
contract is entered into and are subsequently measured at fair value.
The fair value is determined using forward exchange market rates at
the statement of financial position date or appropriate pricing models.
The derivatives do not qualify for hedge accounting. Changes in the
fair value of derivatives are recognised immediately in the income
statement.
r) Borrowings
Borrowings are recognised initially at fair value, being their issue
proceeds (fair value of consideration received) net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any
difference between proceeds net of transaction costs and the
redemption value is recognised in the income statement over the
period of the borrowings using the effective interest method.
s) Sale and repurchase agreements
Securities sold subject to repurchase agreements (‘repos’) are classified
in the financial statements as pledged assets when the transferee has
the right by contract or custom to sell or re-pledge the collateral; the
counterparty liability is included in amounts due to other banks,
deposits from banks, other deposits or deposits due to customers, as
appropriate.
Securities purchased under agreements to resell (‘reverse repos’) are
recorded as loans and advances to other banks or customers, as
appropriate.
The difference between sale and repurchase price is treated as interest
and accrued over the life of the agreements using the effective interest
method.Securities lent to counterparties are also retained in the
financials.
u) Intangible assets
Employee entitlements to annual leave and long service leave are
recognised when they accrue to employees.
Goodwill
A provision is made for the estimated liability for annual leave and longservice leave as a result of services rendered by employees up to the
statement of financial position date.
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Bank’s share of the net assets of the acquired company
at the date of acquisition. Goodwill is tested annually for impairment
and carried at cost less accumulated impairment losses.
Goodwill on acquisitions is reported in the statement of financial
position as an intangible asset.
At each statement of financial position date the Bank assesses whether
there is any indication of impairment. If such indications exist, an
analysis is performed to assess whether the carrying amount of goodwill
is fully recoverable.
A write down is made if the carrying amount exceeds the recoverable
amount. Impairment losses are allocated first to reduce the carrying
amount of any goodwill allocated to a CGU and then to reduce the
carrying amount of other assets in the CGU on a pro rata basis.
Computer software development costs
Costs associated with maintaining computer software programmes are
recognized as an expense as incurred. Development costs that are
directly attributable to the design and testing of identifiable and unique
software products controlled by the Bank are recognized as intangible
assets when the following criteria are met:
It is technically feasible to complete the software product so that it
will be available for use;
management intends to complete the software product and use or
sell it;
there is an ability to use or sell the software product;
it can be demonstrated how the software product will generate
probable future economic benefits;
adequate technical, financial and other resources to complete the
development and to use or sell the software product are available;
and
the expenditure attributable to the software product during its
development can be reliably measured.
Directly attributable costs that are capitalized as part of the software
product include the software development employee costs and an
appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are
recognized as an expense as incurred. Development costs previously
recognized as an expense are not recognized as an asset in a
subsequent period.
Computer software development costs recognized as assets are
amortized over their estimated useful lives, which does not exceed
three years.
Acquired computer software licenses are capitalized on the basis of the
costs incurred to acquire and bring to use the specific software.
t) Acceptances and letters of credit
These costs are amortized on the basis of the expected useful lives.
Software has a maximum expected useful life of 5 years.
Acceptances and letters of credit are accounted for as off-balance
sheet transactions and disclosed as contingent liabilities.
v) Provisions
Provisions are recognised when the Bank has a present legal or
constructive obligation as a result of past events, where it is probable
that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount
of the obligation can be made.
w) Share capital
The bank classifies capital instruments as financial liabilities or equity
instruments in accordance with the substance of the contractual terms
of the instruments.
Dividends on ordinary shares
Dividends on ordinary shares are charged to equity in the period in
which they are declared. Dividends declared after the statement of
financial position date are disclosed in the dividend note.
Earnings per share
The Bank presents basic and diluted earnings per share (EPS) data for
its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Bank by the weighted
average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary
shares outstanding for the effects of all dilutive potential ordinary
shares.
x) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to
make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when due, in
accordance with the terms of a debt instrument.
Such financial guarantees are given to banks, financial institutions and
other bodies on behalf of customers to secure loans, overdrafts and
other facilities.
Financial guarantees are initially recognised in the financial statements
at fair value on the date the guarantee was given. Subsequent to initial
recognition, the Bank’s liabilities under such guarantees are measured
at the higher of the initial investment, less amortisation calculated to
recognise in the income statement the fee income earned on a straight
line basis over the life of the guarantee and the best estimate of the
expenditure required to settle any financial obligation arising at the
Statement of financial position date.
y) Equity compensation plans
The parent company operates two equity settled share based
compensation plans through which certain key management staff of
the bank are compensated. The fair value of equity settled share
options is determined on the grant date and accounted for as an
employee service expense over the vesting period of the share options.
At each Statement of financial position date the estimate of the
number of options expected to vest is reassessed and adjusted against
income over the remaining vesting period.
z) Investment in associates and joint ventures
Associates are those entities in which the bank has significant
influence, but not control, over the financial and operating policies.
Significant influence generally accompanies, but is not limited to, a
shareholding of between 20% and 50% of the voting rights.
Investments in mutual funds over whose financial and operating
policies the group is able to exercise significant influence (including
those in which the bank has between a 20% and 50% economic
interest) are also classified as associates. A jointly controlled entity is
one where a contractual arrangement establishes joint control over the
Stanbic Bank Uganda Limited economic activity of the entity.
69
Annual Report and Financial
31 December 2014
Notes
Notes
3. Financial risk management (Continued)
Interests in associates and jointly controlled entities are accounted for
using the equity method and are measured in the consolidated
statement of financial position at an amount that reflects the group’s
share of the net assets of the associate or jointly controlled entity
(including goodwill).
Equity accounting involves recognising the investment initially at fair
value, including goodwill, and subsequently adjusting the carrying value
for the group’s share of the associates’ and jointly controlled entities’
income and expenses and OCI.
Equity accounting of losses in associates and jointly controlled entities
is restricted to the interests in these entities, including unsecured
receivables or other commitments, unless the group has an obligation
or has made payments on behalf of the associate or jointly controlled
entity.
Unrealised intra¬group profits are eliminated in determining the
group’s share of equity accounted profits. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent
that there is no evidence of impairment.
Equity accounting is applied from the date on which the entity becomes
an associate or jointly controlled entity up to the date on which it
ceases to be an associate or jointly controlled entity. The accounting
policies of associates and jointly controlled entities have been changed
where necessary to ensure consistency with the policies of the group.
Investments in associates and jointly controlled entities are accounted
for at cost less impairment losses in the company’s annual financial
statements
aa) Comparatives
Where necessary, the comparative figures have been adjusted to
conform to changes in presentation in the current year.
3. Financial risk management
a. Strategy in using financial instruments
By their nature, the Bank’s activities are principally related to the use
of financial instruments including derivatives. The Bank accepts
deposits from customers at both fixed and floating rates, and for
various periods, and seeks to earn above-average interest margins by
investing these funds in high-quality assets. The Bank seeks to
increase these margins by consolidating short-term funds and lending
for longer periods at higher rates, while maintaining sufficient liquidity
to meet all claims that might fall due.
The Bank’s risk management policies are designed to identify and
analyse these risks, to set appropriate risk limits and controls, and to
monitor the risks and adherence to limits by means of reliable and upto-date information systems. The Bank regularly reviews its risk
management policies and systems to reflect changes in markets,
products and emerging best practice.Risk management is carried out
centrally under policies approved by the Board of Directors. The Global
Markets team identifies, evaluates and hedges financial risks in close
co-operation with the Bank’s operating units.
The Board provides written principles for overall risk management, as
well as written policies covering specific areas, such as foreign
exchange risk, interest rate risk, credit risk, use of derivative financial
instruments and non-derivative financial instruments. In addition,
internal audit is responsible for the independent review of risk
management and the control environment. The most important types
of risk are credit risk, liquidity risk, market risk and other operational
risk. Market risk includes currency risk, interest rate and other price
risk.
70
31 December 2014
The Bank also seeks to raise its interest margins by obtaining aboveaverage margins, net of allowances, through lending to commercial and
retail borrowers with a range of credit standing. Such exposures involve
not just on-statement of financial position loans and advances; the
Bank also enters into guarantees and other commitments such as
letters of credit and performance, and other bonds.
The Bank also trades in financial instruments where it takes positions in
traded and over-the-counter instruments to take advantage of shortterm market movements in bonds, currency and interest rate. The
Board places trading limits on the level of exposure that can be taken
in relation to both overnight and intra-day market positions.
Foreign exchange and interest rate exposures associated derivatives
are normally offset by entering into counterbalancing positions,
thereby controlling the variability in the net cash amounts required to
liquidate market positions.
b. Capital management
The Bank’s objectives when managing capital, which is a broader
concept than the equity on the face of the statement of financial
position, are:
To comply with the capital requirements set by the regulator, Bank
of Uganda.
To safeguard the Bank’s ability to continue as a going concern so
that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
To maintain a strong capital base to support the development of its
business.
The Bank monitors the adequacy of its capital using ratios established
by Bank of Uganda (BOU), which ratios are broadly in line with those
for the Bank for International Settlements (BIS). These ratios measure
capital adequacy by comparing the Bank’s eligible capital with its
Statement of financial position assets, off-balance-sheet commitments
and market and other risk positions at weighted amounts to reflect
their relative risk.
The table below summarizes the composition of the regulatory capital.
Core capital (Tier 1)
2014
UShs’ 000
Prior year retained profits
Prior year proposed dividends
Current year profits
Available for sale fair valuation
Dividends paid and proposed
Less: Deductions determined by Bank of Uganda
Total core capital
Supplementary capital (Tier 2)
2013
UShs’ 000
51,188,670
299,194,691
50,000,000
135,079,382
(7,108,959)
(134,973,192)
(13,561,784)
379,818,808
51,188,670
269,886,049
70,000,000
101,851,527
(3,351,374)
(150,000,000)
(12,796,873)
326,777,999
Unencumbered general provisions for losses
Subordinated term debt
Total supplementary capital
20,073,067
19,544,199
39,617,266
16,936,038
47,811,668
64,747,706
Total capital (core and supplementary)
419,436,074
391,525,705
Breakdown of deductions determined by Bank of Uganda:
Goodwill and other intangible assets
Unconsolidated Investments
Unrealised Profit on securities
Deferred income tax asset
2014
UShs’ 000
3,439,930
1,088,789
9,033,065
13,561,784
2013
UShs’ 000
4,031,905
1,088,789
126,833
7,549,346
12,796,873
The market risk approach covers the general market risk and the risk of
open positions in currencies and debt and equity securities. Assets are
weighted according to broad categories of notional credit risk, being
assigned a risk weighting according to the amount of capital deemed to
be necessary to support them. Four categories of risk weights (0%,
20%, 50%, and 100%) are applied. Certain asset categories have
intermediate weightings.
The Bank is required at all times to maintain a core capital (tier 1) of
not less than 8% of total risk adjusted assets plus risk adjusted off
statement of financial position items and a total capital (tier 1 + tier 2)
of not less than 12% of its total risk adjusted assets plus risk adjusted
off Statement of financial position items.
Off-balance-sheet credit related commitments and forwards are taken
into account by applying different categories of credit conversion
factors, designed to convert these items into statement of financial
position equivalents. The resulting credit equivalent amounts are then
weighted for credit risk using the same percentages as for Statement
of financial position assets.
Tier 1 capital consists of shareholders’ equity comprising paid up share
capital, share premium and retained earnings less intangible assets and
investments in financial companies, not consolidated. Tier 2 capital
includes the Bank’s eligible long-term loans, mark to market adjustment
on available for sale securities and general provisions. Tier 2 capital is
limited to 100% of Tier 1 capital.
71
31 December 2014
Notes
Notes
3(b) Financial risk management (Continued)
3(c) Credit risk (Continued)
Loans and advances
The Bank’s capital adequacy level was as follows:
Pledged assets
Placements with local banks
Repo - Bank of Uganda
Placements with foreign/group banks
Other investments
- Unconsolidated Investments
- Others
Prepaid operating leases
Other assets
Deferred tax asset
Goodwill
Other intangible assets
Off-balance sheet items
Contingencies secured by cash collateral
Guarantees and acceptances
Performance bonds
Trade related and self liquidating credits
Other commitments
Financial position nominal balance
2014
2013
UShs’ 000
UShs’ 000
Risk weighted balance
2014
2013
UShs’ 000
UShs’ 000
683,031,136
516,544,808
257,521,935
1,223,458
3,000,498
160,178,649
136,152,303
1,618,379,655
421,381,332
618,069,090
340,221,294
1,851,658
2,500,689
27,049,301
299,993,430
1,415,040,925
3,000,498
82,205,517
1,618,379,655
500,138
155,488,320
1,415,040,925
1,088,789
55,590
119,336
70,287,632
9,033,065
1,901,592
1,538,338
47,705,231
3,507,762,015
1,088,789
57,409
129,674
64,775,559
7,549,346
1,901,592
1,667,356
39,790,358
3,243,067,802
55,590
119,336
70,287,632
47,705,231
1,821,753,459
57,409
129,674
62,843,494
39,790,358
1,673,850,318
28,967,640
164,824,403
71,823,050
106,828,892
280,881,937
653,325,922
9,520,550
108,859,815
65,082,461
74,392,579
261,276,846
519,132,251
164,824,403
35,911,525
21,365,778
140,440,969
362,542,675
108,859,815
32,541,231
14,878,516
130,638,423
286,917,985
2,184,296,134
1,960,768,303
Total risk weighted assets
In measuring credit risk of loan and advances to customers and to banks
at a counterparty level, the Bank reflects three components
(i) the ‘probability of default’ by the client or counterparty on its
contractual obligations;
(ii) current exposures to the counterparty and its likely future
development, from which the Bank derive the ‘exposure at default’;
and
(iii) the likely recovery ratio on the defaulted obligations (the ‘loss
given default’).
These credit risk measurements, which reflect expected loss (the
‘expected loss model’) and are required by the Basel Committee on
Banking Regulations and the Supervisory Practices (the Basel
Committee), are embedded in the Bank’s daily operational
management. The operational measurements can be contrasted
with impairment allowances required under IAS 39, which are based
on losses that have been incurred at the statement of financial
position date (the ‘incurred loss model’) rather than expected
losses (Note 3 (I) (ii)).
(i) The Bank assesses the probability of default of individual
counterparties using internal rating tools tailored to the various
categories of counterparty. They have been developed internally
and combine statistical analysis with credit officer judgment and are
validated, where appropriate, by comparison with externally
available data. Clients of the Bank are segmented into four rating
classes. The Bank’s rating scale, which is shown below, reflects the
range of default probabilities defined for each rating class. This
means that, in principle, exposures migrate between classes as the
assessment of their probability of default changes. The rating tools
are kept under review and upgraded as necessary. The Bank
regularly validates the performance of the rating and their predictive
power with regard to default events.
Bank’s rating
1
Capital
Tier 1 capital
Tier 1 + Tier 2 capital
Bank ratio
2013
UShs’ 000
2014
%
2013
%
2014
%
2013
%
379,818,808
419,436,074
326,777,999
397,540,941
17.4%
19.2%
16.7%
20.0%
8%
12%
8%
12%
c. Credit risk
The Bank takes on exposure to credit risk, which is the risk that a
counter party will cause a financial loss for the Bank by failing to
discharge an obligation in full when due. Impairment provisions are
provided for losses that have been incurred at the statement of
financial position date. Significant changes in the economy, or in the
health of a particular industry segment that represents a concentration
of the Bank’s portfolio, could result in losses that are different from
those provided for at the statement of financial position date.
Management therefore carefully manages its exposure to credit risk.
The Bank structures the levels of credit risk it undertakes by placing
limits on the amount of risk accepted in relation to one borrower, or
groups of borrowers, and to industry segments. Such risks are
monitored on a revolving basis and subject to annual or more frequent
review. Limits on the level of credit risk by product, industry sector and
by country are approved by the Board of Directors.
72
31 December 2014
FIA minimum ratio
2014
UShs’ 000
The exposure to any one borrower including banks is further restricted
by sub-limits covering on- and off-balance sheet exposures and daily
delivery risk limits in relation to trading items such as forward foreign
exchange contracts. Actual exposures against limits are monitored daily.
Exposure to credit risk is managed through regular analysis of the
ability of borrowers and potential borrowers to meet interest and
capital repayment obligations and by changing lending limits where
appropriate. Exposure to credit risk is also managed in part by obtaining
collateral and corporate and personal guarantees, but a significant
portion is personal lending where no such facilities can be obtained.
a. Credit risk measurement
Debt securities
All debt securities the bank purchases are government paper with no
credit risk associated.
2
3
5
Description
Standard monitoring
Special monitoring
Sub-standard
Loss
Days
1-29
30-59
60-89
90+
Observed defaults per rating category vary year on year, especially over
an economic cycle.
Exposure at default is based on the amounts the Bank expects to be
owed at the time of default. For example, for a loan this is the face
value. For a commitment, the Bank includes any amount already drawn
plus the further amount that may have been drawn by the time of
default, should it occur.
Loss given default or loss severity represents the Bank’s expectation of
the extent of loss on a claim should default occur. It is expressed as
percentage loss per unit of exposure and typically varies by type of
counterparty, type and seniority of claim and availability of collateral or
other credit mitigation
(a) Collateral
The Bank employs a range of policies and practices to mitigate credit
risk. The most traditional of these is the taking of security for funds
advanced, which is common practice. The Bank implements guidelines
on the acceptability of specific classes of collateral or credit risk
mitigation. The principal collateral types for loans and advances are:
Mortgages over residential properties;
Charges over business assets such as premises, inventory and
accounts receivable;
Charges over financial instruments such as debt securities and
equities.
Longer-term finance and lending to corporate entities are generally
secured; revolving individual credit facilities are generally unsecured. In
addition, in order to minimise the credit loss the Bank will seek additional
collateral from the counterparty as soon as impairment indicators are
noticed for the relevant individual loans and advances.
Collateral held as security for financial assets other than loans and
advances is determined by the nature of the instrument. Debt securities,
treasury and other eligible bills are generally unsecured, with the
exception of asset-backed securities and similar instruments, which are
secured by portfolios of financial instruments.
(b) Derivatives
The Bank maintains strict control limits on net open derivative positions
(ie, the difference between purchase and sale contracts), by both
amount and term. At any one time, the amount subject to credit risk is
limited to the current fair value of instruments that are favourable to the
Bank (ie, assets where their fair value is positive), which in relation to
derivatives is only a small fraction of the contract, or notional values used
to express the volume of instruments outstanding. This credit risk
exposure is managed as part of the overall lending limits with customers,
together with potential exposures from market movements. Collateral or
other security is not usually obtained for credit risk exposures on these
instruments, except where the Bank requires margin deposits from
counterparties.
Settlement risk arises in any situation where a payment in cash, securities
or equities is made in the expectation of a corresponding receipt in cash,
securities or equities. Daily settlement limits are established for each
counterparty to cover the aggregate of all settlement risk arising from
the Bank’s market transactions on any single day.
(c) Credit related commitments
The primary purpose of these instruments is to ensure that funds are
available to a customer as required. Guarantees and standby letters of
credit, which represent irrevocable assurances that Bank will make
payments in the event that a customer cannot meet its obligations to
third parties, carry the same credit risk as loans. Documentary and
commercial letters of credit, which are written undertakings by the Bank
on behalf of a customer authorising a third party to draw drafts on the
Bank up to a stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they relate
and therefore carry less risk than a direct borrowing.
Commitments to extend credit represent unused portions of
authorisations to extend credit in the form of loans, guarantees or letters
of credit. With respect to credit risk on commitments to extend credit,
the Bank is potentially exposed to loss in an amount equal to the total
unused commitments. However, the likely amount of loss is less than the
total unused commitments, as most commitments to extend credit are
contingent upon customers maintaining specific credit standards.
The Bank monitors the term to maturity of credit commitments because
longer-term commitments generally have a greater degree of credit risk
than shorter-term commitments.
(d) Impairement and Provisioning Policy
The internal and external rating systems described in Note 3 (I) (i) focus
more on credit-quality mapping from the inception of the lending and
investment activities. In contrast, impairment provisions are recognised
for financial reporting purposes only for losses that have been incurred
at the statement of financial position date based on objective evidence
of impairment (see Note 2(I)). Due to the different methodologies
applied, the amount of incurred credit losses provided for in the financial
73
31 December 2014
Notes
Notes
statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and
banking regulation purposes.
Credit risk exposures relating to assets included on the statement of financial position are as follows:
The impairment provision shown in the statement of financial position at year-end is derived from each of the five internal rating grades. However,
the majority of the impairment provision comes from the bottom two gradings. The table below shows the percentage of the Bank’s on and
offbalance sheet items relating to loans and advances and the associated impairment provision for each of the Bank’s internal rating categories:
Bank’s rating categories.
2014
Loans & advances %
Standard & special monitoring
Sub-standard, doubtful and loss
96.1
3.9
100.0
Impairment
provision %
1.2
46.8
3.0
2013
Loans & advances %
95.0
5.0
100.0
Impairment
provision %
1.6
53.3
4.2
The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following
criteria set out by the Bank:
Bank of Uganda
Investment securities
Treasury bonds - available for sale
Treasury bills - available for sale
Treasury bills - pledged assets
Loans to individuals
Overdrafts
Term loans
Mortgages
Delinquency in contractual payments of principal or interest;
Loans to corporate entities
Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales);
Large corporate entities
Small & medium size entities
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrower’s competitive position;
Deterioration in the value of collateral; and
The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when
individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at
reporting date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held
(including re-confirmation of its enforceability) and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for:
(i) Portfolios of homogenous assets that are individually below materiality thresholds; and
Trading assets
Treasury bonds
Treasury bills
Derivative assets
Other
2014
UShs’ 000
447,077,843
293,162,755
2013
UShs’ 000
229,327,587
326,787,104
421,415,512
95,129,296
1,223,458
389,494,443
228,574,647
1,851,658
517,490
472,958,691
119,059,106
1,529,689
417,877,764
109,467,891
607,810,084
467,324,262
631,905,826
316,809,705
15,444,868
242,077,067
3,390,164
54,838,776
3,241,429,372
59,078,600
281,142,694
129,020
52,005,348
3,045,981,976
Credit risk exposures relating to assets not included on the statement of financial position are as follows:
(ii) Losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgment and statistical techniques.
(iii)Maximum exposure to credit risk before collateral held or other credit impairments
2014
UShs’ 000
2013
UShs’ 000
Financial guarantees
251,112,562
177,277,890
Loan commitments and other credit related liabilities
402,213,360
341,854,361
653,325,922
519,132,251
3,894,755,294
3,565,114,227
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2014 and 2013, without taking account of
any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying
amounts as reported in the statement of financial position.
74
31 December 2014
75
31 December 2014
Notes
Notes
The table below shows the collateral coverage for the secured loans as at 31 December 2014.
Customer
loans
Netting off
agreements
Exposure after
netting off
Collateral cover
51-100%
Collateral cover
Over 100%
Total
The allowances for impairment are summarised per segment as follows; 2014
2013
Loans & advances to
Loans & advances to
Loans & advances to
Loans & advances to
customers banks customers banks
UShs’000 UShs’000 UShs’000 UShs’000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
Secured loans
762,562,474
1,741,796
760,820,678
547,034,247
161,070,762
708,105,009
Unsecured loans
905,596,145
-
905,596,145
-
-
-
1,668,158,619
1,741,796
1,666,416,823
547,034,247
161,070,762
708,105,009
As at 31 December 2013 Customer
loans UShs’ 000 Secured loans
Netting off
Exposure after
Collateral cover
Collateral cover
agreements netting off 51-100% Over 100% UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 865,200,305 Unsecured loans
249,187 612,390,569 1,477,590,874 Total
UShs’ 000
864 ,951,118 631,69,167 233,831,138 865,200,305
- 612,390,569 249,187 1,477,341,687 - 631,369,167 - 233,831,138 865,200,305
Personal and Business banking
- Mortgage lending
(4,014,177) - (5,453,679) -
- Instalment sales and fin. Leases
(11,030,469) - (5,693,423) -
- Other loans
(29,953,445) - (44,496,940) -
Corporate and investment banking
- Corporate lending
(4,780,872) - (6,905,907) -
(49,778,963) - (62,549,949) -
The total impairment provision for loans and advances is UShs 49,779 million (2013: UShs 62,549 million) of which UShs 30,536 million
(2013:UShs 36,459 million) represents the individually impaired loans and the remaining amount of UShs 19,243 million (2013: UShs 26,090
million) represents the portfolio provision. Further information of the impairment allowance for loans and advances to banks and to customers is
provided in Note 20.
Management remains confident in its ability to continue to control the exposure of credit risk to the Bank resulting from both its loan and advances
portfolio and debt securities based on the following:
96% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2013: 95%);
Mortgage loans, are backed by collateral;
85% of the loans and advances portfolio are considered to be neither past due nor impaired (2013: 76%); and
All debt securities held by the Bank are issued by the Bank of Uganda on behalf of the Government of Uganda.
(iv)Loans and advances are summarised as follows;
2014
2013
Loans & advances to
customers
Loans & advances to
banks
Loans & advances to
customers
Loans & advances to
banks
Neither past due nor impaired
Past due but not impaired
Impaired loans and advances
Gross loans and advances
Allowances for impairment
UShs’000
1,415,501,834
187,347,361
65,309,424
1,668,158,619
(49,778,965)
UShs’000
267,399,603
267,399,603
-
UShs’000
1,122,895,989
280,429,902
74,264,983
1,477,590,874
(62,549,947)
UShs’000
181,124,853
181,124,853
-
Net loans and advances
1,618,379,654
267,399,603
1,415,040,927
181,124,853
76
31 December 2014
77
31 December 2014
78
31 December 2014
259,116,128
21,313,774
21,313,774
280,429,902
605,469,199
605,469,199
1,122,895,988
170,107,579
517,426,789
353,435,077
29,182,939
59,825,610
116,397,653
47,594,059
12,718,478
187,347,361
594,486,659
1,415,501,835
12,718,478
594,486,659
174,628,883
821,015,176
119,218,862
16,309,101
39,100,920
531,105,672
55,400,577
234,508,927
UShs’000
UShs’000
Past due but
not impaired
Performing loans
Neither past due
nor impaired
(b)Loans past due but not impaired
Total recognised financial instruments
- Corporate lending
- Other loans
- Mortgage lending
As at 31 December 2013
Total recognised financial instruments
- Corporate lending
- Other loans
- Mortgage lending
4,388,719
23,917,446
650,324,534
995,644,059
3,949,672
5,477,367
7,273,623
16,700,662
3,147,693
3,147,693
19,848,355
176,223,263
76,776,998
523,542,656
776,542,917
626,782,973
626,782,973
1,403,325,890
604,948
24,522,394
1,602,849,195
607,205,137
604,948
12,723,809
71,709,678
607,205,137
6,804,918
273,609,847
UShs’000
UShs’000
Individually
impaired
Total
1,147,036
1,147,036
17,930,264
16,783,228
6,267,653
9,330,233
1,185,342
25,921,441
-
- 25,921,441
9,988,122
7,698,768
8,234,551
UShs’000
Doubtful
Non performing loans
828,125
828,125
36,486,365
35,658,240
33,031,414
2,073,308
553,518
14,865,588
-
- 14,865,588
12,191,689
1,332,693
1,341,206
UShs’000
Loss
Total
5,122,854
5,122,854
74,264,984
69,142,130
46,572,690
16,880,908
5,688,532
65,309,423
604,948
604,948
64,704,475
26,568,530
21,755,270
16,380,675
UShs’000
3,134,382
30,811,310
35,610,828
951,452
951,452
36,562,280
15,761,380
33,531,303
4,171,401
4,171,401
37,702,704
570,115,345
845,685,048
631,905,827
631,905,827
1,477,590,875
29,623,131
604,948
604,948
13,746,527
35,686,293
-
-
29,018,183
35,686,293
9,836,312
824,130
UShs’000
18,357,741
8,210,789
11,918,959
15,556,545
UShs’000
93,657,907
1,665,136
181,911,796
1,668,158,619
607,810,084
607,810,084
1,060,348,535
676,893,064
93,464,949
289,990,522
UShs’000
Net impaired
loans
4,023,396
Total loans
Security
against impaired loans
The credit quality of financial assets is managed by the bank using internal credit ratings. The table below shows the credit quality by class of financial asset for credit risk related items, based on
the bank’s credit rating system.
(a)Credit quality
Notes
Notes
Gross amount of loans and advances by class of customers that were past due but not impaired were as follows:
Loans past due but not impaired
Gross amounts of loans and advances by class of customer that were past due but not impaired were as follows
- Corporate lending
Past due up to
30 days
UShs’000
- Mortgage lending
- Other loans
- Corporate lending
Personal and Business banking - Mortgage lending
- Other loans
Past due
30 - 60 days
UShs’000
Past due
60 - 90 days
UShs’000
79
Total
UShs’000
25,440,688
10,916,060
101,988,414
138,345,162
11,823,873
4,995,743
12,204,205
29,023,821
1,836,359
397,394
5,026,195
7,259,948
39,100,920
16,309,197
119,218,814
174,628,931
12,718,430
12,718,430
- - 12,718,430
12,718,430
151,063,592
29,023,821
7,259,948
187,347,361
47,778,689
17,911,778
137,296,297
202,986,764
7,751,172
6,923,264
18,871,919
33,546,355
4,295,749
4,347,897
13,939,362
22,583,008
59,825,610
29,182,939
170,107,578
259,116,127
18,217,129
18,217,129
221,203,893
3,086,744
3,086,744
36,633,099
9,901
9,901
22,592,909
21,313,774
21,313,774
280,429,901
(c) Loans and advances to banks
The total gross amount of individually impaired loans and advances to banks as at 31 December 2014was Nil(2013: nil). No collateral is held by the
31 December 2014
80
31 December 2014
- Pledged assets
- Other assets
Government securities - AFS
Financial assets designated
at fair value:
- Debt securities
1,289,688,561
296,527,709
-
108,605,512
-
-
340,221,294
1,851,658
-
205,425,980
108,605,512
268,159,370
296,527,709
1,074,621,651
618,069,090
329,543,420
3,099
-
-
257,521,935
1,223,458
-
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorised by the industry sectors of our
counterparties.
- Debt securities
- Pledged assets
- Other assets
(d) Concentrations of risk of financial assets with credit risk exposure
1,361,315
1,361,315
6,160,998
205,425,980
6,160,998
268,159,370
-
2013
UShs’ 000
Financial assets designated
at fair value:
2014
UShs’ 000
-
-
47,052,757
-
-
58,095,940
47,052,757
-
58,095,940
-
Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. Repossessed properties
are not included in the statement of financial position.
299,331,450
411,759,495
-
-
461,730,798
411,759,495
-
461,730,798
-
49,025,395
12,723,521
-
6,395,467
41,879,819
750,109
-
6,746,000
5,348,000
629,521
-
665,647,650
52,005,348
-
729,585,306
613,642,302
54,838,776
674,746,530
-
-
Total
UShs’ 000
2,819,281,684
1,851,658
52,005,348
340,221,294
2,797,619,045
618,069,090
329,543,420
1,477,590,874
257,521,935
1,223,458
54,838,776
1,668,158,618
299,331,450
516,544,808
(e) Re-possessed properties
-
Residential properties
Commercial properties
Vehicles
Others
UShs’ 000
2013
UShs’ 000
Individuals
UShs’ 000
Nature of assets
2014
UShs’ 000
Transport
UShs’ 000
516,544,808
Agriculture
UShs’ 000
No other financial assets are individually or collectively impaired (2013: nil). No collateral is held by the Bank.
Government securities - AFS
Manufucturing
UShs’ 000
(d) Other Financial Assets
Bank.
Financial institutions
UShs’ 000
Notes
Notes
81
31 December 2014
Notes
Notes
3(d) Market Risk (Continued)
d. Market risk
(i) Foreign exchange risk
The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general
and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange
rates and equity prices.
The Bank had the following significant foreign currency exposure positions (all amounts expressed in millions of Uganda Shillings):
Market risk measurement techniques:
As part of the management of market risk, the Bank’s major measurement techniques used to measure and control market risk is value at risk and
Pv01 (present value at one).
The Bank applies ‘value at risk’ methodology (VaR) to its trading portfolio, to estimate the market risk of foreign exchange positions held and the
maximum losses expected. Management applies Pv01 methodology to it’s trading and non trading portfolios to estimate the market interest rate
risk of positions held and the maximum losses that could arise. The estimates are based upon a number of assumptions for various changes in market
conditions. The assets and liabilities committee (ALCO) sets limits on both the value of risk and Pv01that may be acceptable for the Bank. These are
monitored on a weekly basis by the Risk Management department.
VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’
amount the Bank might lose, but only to a certain level of confidence (98%). There is therefore a specified statistical probability (2%) that actual
loss could be greater than the VAR estimate. Pv01 is the present value impact of a one basis point move in an interest rate.
The use of these approaches does not prevent losses outside of these limits in the event of more significant market movements.
As VaR and Pv01 constitute an integral part of the Bank’s market risk control regime, limits are established by the Board annually for all trading and
non-trading portfolios. Actual exposure against limits, together with a consolidated group-wide VaR, is reviewed daily by the Bank’s Treasury.
The quality of the VaR model is continuously monitored by back-testing the VaR results for trading books. All back-testing exceptions and any
exceptional revenues on the profit side of the VAR distribution are investigated.
The VaR summaries for 2014 and 2013 are as follows:
Average
UShs’ 000
Maximum
UShs’ 000
Assets
Other investment securities
Other assets
Total Assets
Liabilities
Customer deposits
Amounts due to banks
Other liabilities
Total Liabilities
Net Statement of financial position
Net Currency Forwards
Net Mismatch
12 months to 31 December 2014
Minimum
UShs’ 000
31 December 2014
UShs’ 000
Interest rate book - Trading
135,798
295,340
61,669
237,507
Interest rate book - Available for sale
420,322
903,364
141,715
605,154
Foreign exchange trading book VAR
58,394
430,746
6,285
134,094
Total Assets
Total Liabilities
Net Statement of financial position
Net Currency Forwards
Net Mismatch
USD
UShs’m
Euro
UShs’m
Other
UShs’m
Total
UShs’m
137,869
87,119
14,025
875,171
103,367
1,217,551
19,207
8,197
7,978
2,817
56
50,390
88,645
5,726
7,928
3,790
1
29,704
47,149
162,802
103,244
25,793
877,989
56
183,461
1,353,345
549,295
90,207
533,307
44,732
1,217,541
10
(79,992)
(79,982)
81,759
540
6,371
88,670
(25)
1
(24)
14,808
145
31,067
1,335
47,355
(206)
(206)
645,862
90,892
564,374
52,438
1,353,566
(221)
(79 991)
(80 212)
1,141,373
1,138,645
2,728
(57 545)
(54 817)
78,873
78,899
(26)
(50)
(76)
18,873
18,338
535
535
1,239,119
1,235,882
3,237
(57 595)
(54 358)
(ii) Interest rate risk
12 months to 31 December 2013
Average
Maximum
Minimum
31 December 2013
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
Interest rate book - Trading
142,923 Interest rate book - Available for sale
Foreign exchange risk VAR
568,032 20,697 533,479 993,542 167,955 663,805
57,588 432,543 6,135 134,085
There are several drivers for VaR that include the changes in foreign
exchange (FX) Net Open Positions (NOP) held by the desk as well as
the changes in exchange rates on a daily basis. The average NOP for
2014 was USD (3,787,500) 2013: USD (3,929,958).
The FX desk saw an increase in activity over the course of the year as
economic activity picked up. The currency depreciated steadily
throughout the year on account of global strengthening of the USdollar
and elevated corporate demand, the desk remained positioned on the
right side of the market movements hence no spike in VaR even with
the increase in average risk positions.
The PV01 was relatively flat throughout the year attributed to slow
economic recovery and drop in inflation. The trading book, on average,
82
31 December 2014
The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks.
Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Asset
and Liability Committee (ALCO) sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored daily.
237,490
held larger positions for most of the year in an effort to take advantage
of the interest rate movements during the year.The banking book
maturity profile stood at 2-3years, higher than the previous year. Pv01
was also slightly higher to take advantage of the interest rate
movements. The outlook on interest rates was reflective of monetary
policy stance.
(i) Foreign exchange risk
The Bank takes on exposure to the effects of fluctuations in the
prevailing foreign currency exchange rates on its financial position and
cash flows. The Asset and Liability Committee sets limits on the level of
exposure by currency and in total for both overnight and intra-day
positions, which are monitored daily.
83
31 December 2014
Notes
Notes
3(d) Market Risk (Continued)
(ii) Interest rate risk
(e) Liquidity risk
\
The table below summarises the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts,
categorised by the earlier of contractual re-pricing or maturity dates. The Bank does not bear an interest rate risk on items not on the statement
of financial position.
At 31 December 2014
Asset
Government securities - for trading
Deposits and balances due from other
banks
Pledged assets
Derivative assets
Tax recoverable
Other assets
Total assets
Liabilities and shareholders’
funds
Customer deposits
Deposits due to other banks
Borrowed funds
Other liabilities
Subordinated bonds / debts
Total liabilities
Total interest repricing gap
At 31 December 2013
Total Assets
Total Liabilities and shareholder’s equity
Total Interest Re-pricing gap
Non-interest
bearing
UShs’m
Total
UShs’m
297,208
5,559
683,031
-
683,031
516,544
257,523
-
-
-
267,400
133,199
339,569
1,990
31,487
289,460
3,980
1,039,938
1,346,685
3,390
1,144
12,059
115,136
814,760
31,932
1,618,380
1,223
3,390
1,144
12,059
115,136
3,507,762
2,009,106
162,598
9
575,489
2,747,202
(2,029,914)
112,028
358
112,386
227,183
11,222
5
11,227
278,233
14,059
19,544
33,603
1,313,082
67
116,307
116,374
698,386
2,132,356
162,603
14,068
575,847
67
116,307
19,544
3,020,792
486,970
Up to 1
month
UShs’m
1- 6
months
UShs’m
6 - 12
months
UShs’m
Over 1 year
UShs’m
3,927
5,020
98,329
108,041
117,080
138,903
267,400
-
25,962
413,756
1,223
717,288
508,828
2,075,892
(1,567,064)
402,393
578,609
(176,216)
384,869
10,106
374,763
1,408,637
66,583
1,342,054
536,870
105,100
431,770
3,241,597
2,836,290
405,307
Liquidity risk is the risk that the Bank is unable to meet its payment
obligations associated with its financial liabilities when they fall due and
to replace funds when they are overdrawn. The consequence may be
the failure to meet obligations to repay depositors and fulfil commitments
to lend.
The Bank is exposed to daily calls on its available cash resources from
overnight deposits, current accounts, maturing deposits, and calls on
cash settled contingencies. The Bank does not maintain cash resources
to meet all of these needs as experience shows that a minimum level of
reinvestment of maturing funds can be predicted with a high level of
certainty.
The Asset and Liability Committee sets limits on the minimum
proportion of maturing funds available to meet such calls and on the
minimum level of inter-bank and other borrowing facilities that should
be in place to cover withdrawals at unexpected levels of demand.
The Bank’s liquidity management process, as carried out within the
Bank and monitored by the Treasury and Capital Management (TCM)
team, includes:
Day-to-day funding, managed by monitoring future cash flows to
ensure that requirements can be met. These include replenishment
of funds as they mature or are borrowed by customers.
Maintaining a portfolio of highly marketable assets that can easily
be liquidated as protection against any unforeseen interruption to
cash flow;
Monitoring balance sheet liquidity ratios against internal and
regulatory requirements; and managing the concentration and
profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement
and projections for the next day, week and month respectively, as
these are key periods for liquidity management. The starting point
for those projections is an analysis of the contractual maturity of
the financial liabilities and the expected collection date of the
financial assets
The assets and liability management team (ALM) within TCM also
monitors unmatched medium-term assets, the level and type of
undrawn lending commitments, the usage of overdraft facilities and the
impact of contingent liabilities such as standby letters of credit and
guarantees.
Furthermore the ALCO monitors the sensitivity of net interest income to changes in interest rates. Limits are set and monitored monthly.
ALCO reduced its interest rates shock parameters to 300basis points as interest rate scene remained relative flat for most of the year. The same
trend was reflective with the monetary policy trend.
The statement of financial position is shocked up and down by 300bps to get an indicative level of the potential drop or increase in forecasted
annual NII. The interest rate risk limit is set at 10% (for a 4% shock, a drop in NII is not expected to exceed 10%. Where this is exceeded, then it
is indicative of an adverse interest rate positioning of the statement of financial position.
The table below summarises the sensitivity of a flat interest rate increase or decrease of 400bps at 31st December 2014 and December 2013.
400bps Increase in interest rates
300bps decrease in interest rates
84
31 December 2014
31st December 2014
Change in net interest
% of net interest
Income Ushs’000
income
7,895,655
(5,079,808)
4.2
(2.7)
31st December 2013
Change in net interest
% of net interest
Income Ushs’m
income
(8,646,593)
12,106,033
(3.9)
5.5
85
31 December 2014
Notes
Notes
3(e) Liquidity risk (Continued)
3(e) Liquidity risk (Continued)
Liquid assets to deposit ratio
Total deposits
Total liquid assets held
Liquidity ratio
Regulatory requirement
2014
UShs’ 000
2013
UShs’ 000
2,132,356,040
1,195,245,187
56.1%
20.0%
1,898,647,790
1,010,796,144
53.2%
20.0%
At 31 December 2014
Asset:
Government securities - for trading
Deposits and balances due from other banks
Pledged assets
Derivative assets
Investment in associate
Prepaid operating lease
Total assets
Liabilities:
Customer deposits
Deposits due to other banks
Borrowed funds
Other liabilities
Subordinated bonds / debt
Total liabilities
Liquidity gap
Cummulative liquidity gap
(f)Off-balance sheet items
i. Loan commitments
The table below presents the Cash flows payable by the bank under financial liabilities by remaining contractual maturities at the reporting date
Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, central bank balances, items in the course of
collection; loans and advances to banks; and loans and advances to customers. In addition, debt securities and treasury and other bills have been
pledged to secure liabilities. The Bank would also be able to meet unexpected net cash outflows by selling securities and accessing additional funding
sources such as asset-backed markets.
The dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers and
other facilities (Note 37), are summarised in the table below.
ii. Other financial facilities
Up to 1 month
Ushs’m
683,031
3,927
5,020
267,400
25,962
413,756
1,223
3,066
1,403,385
2,009,106
162,598
9
575,489
67
116,307
2,863,576
(1,460,191)
(1,460,190)
1 - 6 months
Ushs’m
98,329
108,041
133,199
324
339,893
112,028
0
358
112,386
227,507
(1,232,683)
6 - 12 months
Ushs’m
117,080
138,903
1,990
31,487
289,460
11,222
5
11,227
278,233
(954,450)
Over 1 year
Ushs’m
297,208
5,559
3,980
1,039,938
1,144
119
1,347,948
14,059
19,544
33,603
1,314,345
359,895
Total Ushs’m
683,031
516,544
257,523
267,400
31,932
1,618,380
1,223
3,390
1,144
119
3,380,686
2,132,356
162,603
14,068
575,847
67
116,307
19,544
3,020,792
359,894
-
24,491
272
24,763
(1,484,953)
(1,484,953)
81,949
127,361
6
209 316
(1,441,999)
(2,926,951)
102,258
153,521
748
256,527
(1,210,977)
(4,137,928)
42,415
121,060
25,275
188,750
171,145
(3,966,783)
251,113
121,331
280,882
26,029
679,355
(3,966,783 )
-
Other financial facilities (Note 37) are also included below based on the earliest contractual maturity date.
iii. Operating lease commitments
Where the Bank company is the lessee, the future minimum lease payments under non-cancellable operating leases, as disclosed in Note 37, are summarised in the table below.
Not later than 1
year
Letters of credit
Guarantees
Commitments to extend credit
Operating lease commitments
Letters of credit
Guarantees
UShs’000
271,566
208,698,063
280,881,937
26,028,725
1 to 5 years
515,880,291 80,577,515
177,220,016
261,276,846
6,715,459
Total
525,789,836 UShs’000
121,059,857
42,414,499
-
163,474,356 57,874
7,487,046
7,544,920 UShs’000
121,331,423
251,112,562
280,881,937
26,028,725
679,354,647
80,577,515
177,277,890
261,276,846
14,202,505
533,334,756
Off-Balance Sheet
Guarantees
LCs
Total off balance sheet
Net liquidity gap
Net cumulative liquidity gap
Total assets (Contractual maturity dates )
930,209 402,508 384,883 1,409,913 3,127,513
579,504 10,532 66,583 2,836,290
Liquidity gap
2,179,671 (1,249,462) 291,223 -
136,680
214,563
374,351 (1,052,107) 171,609
291,223
(1,249,462) (176,996) (1,426,458) 1,343,330 Cumulative liquidity gap
10,482
533,334
Net liquidity gap
(1,386,142)
(391,559)
202,742
1,332,848
(242,111)
Net cumulative liquidity gap
(1,386,142)
(1,777,701)
(1,574,959)
(242,111)
-
Total liabilities (Contractual maturity dates )
Total Off balance sheet
86
31 December 2014
87
31 December 2014
Notes
Notes
(h) Fair value hierarchy (Continued)
The information below shows the classification of financial instruments held at fair value into the valuation hierarchy set out below for the year ended
31 December 2014 and 2013:
(g)Fair value of financial assets and liabilities
The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s statement of
financial position at their fair value.
Carrying Value
2014
UShs’000
Financial assets
Other Investment securities
Other assets
267,399,603
31,931,847
1,618,379,655
1,144,379
54,838,776
2,132,356,040
162,603,909
14,067,737
575,847,246
116,306,610
(i) Due from other banks and group companies
Due from other banks includes inter-bank placements and items in the
course of collection.
The fair value of floating rate placements and overnight deposits is their
carrying amount. The estimated fair value of fixed interest bearing
deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and remaining
maturity.
(ii) Loans and advances to customers
Loans and advances are net of provisions for impairment. The estimated
fair value of loans and advances represents the discounted amount of
estimated future cash flows expected to be received. Expected cash
flows are discounted at current market rates to determine fair value.
(iii) Investment securities
Investment securities include only interest-bearing assets held to
maturity; assets classified as available for sale are measured at fair
value. Fair value for held-to-maturity assets is based on market prices
or broker/dealer price quotations. Where this information is not
available, fair value is estimated using quoted market prices for
securities with similar credit, maturity and yield characteristics.
(iv)Due to other banks, customers and group companies
The estimated fair value of deposits with no stated maturity, which
includes non-interest-bearing deposits, is the amount repayable on
demand.
The estimated fair value of fixed interest-bearing deposits and other
borrowings not quoted in an active market is based on discounted cash
flows using interest rates for new debts with similar remaining maturity.
88
31 December 2014
2013
UShs’000
31 December 2014
Financial assets
181,124,853
148,418,567
1,415,040,925
1,146,198
52,005,348
1,787,577,713
238,472,365
18,840,955
638,486,748
103,578,230
267,399,603
31,931,847
1,618,379,655
1,144,379
54,838,776
181,124,853
148,418,567
1,415,040,925
1,146,198
52,005,348
1,787,577,713
238,472,365
18,840,955
638,486,748
103,578,230
Total
UShs’ 000
UShs’ 000
-
3,390,164
257,521,935
516,544,808
1,223,458
-
1,144,379
3,390,164
257,521,935
516,544,808
1,223,458
1,144,379
Total assets
-
778,680,365
1,144,379
779,824,744
-
66,740
-
66,740
-
66,740
-
66,740
- Derivative liabilities
2,132,356,040
162,603,909
14,067,737
575,847,246
116,306,610
Level 3
Level 2
UShs’ 000
- Derivative assets
- Government securities - Held for trading
- Government securities - AFS
- Pledged assets
- Other investment securities
Customer deposits
Amounts due to other banks
Borrowed funds
Other liabilities
Fair Value
2014
UShs’000
2013
UShs’000
Level 1
UShs’ 000
Total liabilities
31 December 2013
Financial assets
Level 1 Level 2 Level 3 Total
UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000
(h) Fair value hierarchy
- Derivative assets
- 129,020 - 129,020
The determination of fair value for financial assets and liabilities for
which there is no observable market price requires the use of valuation
techniques as described in accounting policy 2 (e)(v). For financial
instruments that trade infrequently and have little price transparency,
fair value is less objective, and requires varying degrees of judgment
depending on liquidity, concentration, uncertainty of market factors,
pricing assumptions and other risks affecting the specific instrument.
- Government securities - Held for trading
- 340,221,294 - 340,221,294
- Government securities - AFS
- 618,069,090 - 618,069,090
- Pledged assets
- 1,851,658 - 1,851,658
The Bank measures fair values using the following fair value hierarchy
that reflects the significance of the inputs used in making the
measurements:
Level 1: Quoted market price (unadjusted) in an active market for an
identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly (i.e., as prices) or indirectly (i.e., derived from prices). This
category includes instruments valued using: quoted market prices in
active markets for similar instruments; quoted prices for identical or
similar instruments in markets that are considered less than active; or
other valuation techniques where all significant inputs are directly or
indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs.
This category includes all instruments where the valuation technique
includes inputs not based on observable data and the unobservable
inputs have a significant effect on the instrument’s valuation. This
category includes instruments that are valued based on quoted prices
for similar instruments where significant unobservable adjustments or
assumptions are required to reflect differences between the instruments.
- Other investment securities
Total assets
- - 1,146,198 1,146,198
- 960,271,062 1,146,198 961,417,260
- Derivative liabilities
Total liabilities
- 1,521,864 - 1,521,864
- 1,521,864 - 1,521,864
The information below shows the classiffication of assets and liabilities not presented on the banks statement of financial position at fair value but
for which fair value is disclosed in the valuation hierrachy.
31 December 2014
Financial assets
- - 267,399,603 267,399,603
- - 31,931,847 31,931,847
- - 1,618,379,655 1,618,379,655
Other assets
- - 54,838,776 54,838,776
1,972,549,881 1,972,549,881
Total assets
- - Financial liabilities
Customer deposits
- - - - 2,132,356,040 162,603,909 2,132,356,040
162,603,909
Borrowed funds
- - 14,067,737 14,067,737
- - 575,847,246 575,847,246
Other liabilities
- - 116,306,610 116,306,610
Total liabilities
- - 3,001,181,542 3,001,181,542
89
31 December 2014
Notes
Notes
3(i) Fair value hierarchy (Continued)
4 Critical accounting estimates and judgements in applying accounting policies (Continued)
(b) Non performing loans
31 December 2013
Financial assets
- - 181,124,853 181 124 853
- - 148,418,567 148 418 567
- - 1,415,040,925 1 415 040 925
Other assets
- - 52,005,348 52 005 348
Total assets
- - 1,796,589,693 1,796,589,693
Customer deposits
- - 1,787,577,713 1,787,577,713
- - 238,472,365 238,472,365
Borrowed funds
- - 18,840,955 18,840,955
- - 638,486,748 638,486,748
Other liabilities
- - 103,578,230 103,578,230
Total liabilities
- - 2,786,956,011 2,786,956,011
Financial Instruments in level 3
The following table presents the changes in Level 3 instruments fair valued for the year ended 31 December 2014 and 2013.
Other investment securities fair valued through profit and loss
2014 2013
UShs’000 UShs’000
Opening balance
1,146,198 1,051,920
Closing balance
(1,819) 94,278
1,144,379 1,146,198
Total gains or losses for the period included in profit or loss for assets held at the end of the
reporting period, under ‘Other gains/losses’
(1,819) 94,278
There was no transfer of balances between the different fair value hierrachy levels out of or into level 3
4 Critical accounting estimates and judgements in applying accounting policies
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
(a) Impairment losses on loans and advances
The Bank assesses its loan portfolios for impairment at each statement of financial position date. In determining whether an impairment loss should
be recorded in the income statement, the Bank makes judgements as to whether there is observable data indicating a measurable decrease in the
estimated future cash flows from a portfolio of loans before the decrease can be allocated to an individual loan in that portfolio. Estimates are made
of the duration between the occurrence of a loss event and the identification of a loss on an individual basis. The impairment for performing loans
is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators
present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and
scaled to the estimated loss emergence period. At year end, the Bank applied the following loss emergence periods:
Personal & Business Banking
- Mortgage Lending
- Instalment sales & finance leases
- Other lending
Corporate lending
Loss emergence period
2014
2013
Months
Months
2013
Ushs’000
3
3
5,022,369
5,824,271
3
3
3
12
3
3
3
12
954,849
247,566
3,819,954
1,758,893
1,138,762
601,245
4,084,264
456,356
6,781,262
6,280,627
1- Sensitivity is based on the effect of a change of one month in the emergence period on the value of the impairment.
31 December 2014
90
Sensitivity1
2014
Ushs’000
Personal & Business Banking
- Mortgage Lending
- Instalment sales & finance leases
- Other lending
Corporate lending
Recoveries as a % of impaired loans
2014
%
63%
65%
51%
50%
77%
2013
%
60
78
53
58
47
Sensitivity1
2014
Ushs’000
946,303
61,112
140,702
744,489
24,738
971,041
2013
Ushs’000
766,454
122,264
96,740
547,450
47,232
813,686
1-Sensitivity is based on the effect of a change of one percentage point in the estimated recovery on the value of the impairment
(c) Fair value of derivatives
Gains and losses recognised in profit or loss
Retail loans are individually impaired if the amounts are due and unpaid for three or more months. Corporate loans are analysed on a case-by-case
basis taking into account breaches of key loan conditions. Management’s estimates of future cash flows on individually impaired loans are based on
historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount
and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Recoveries of
individual loans as a percentage of the outstanding balances are estimated as follows:
The fair value of financial instruments that are not quoted in active
markets are determined by using valuation techniques. Where
valuation techniques (for example, models) are used to determine fair
values, they are validated and periodically reviewed by qualified
personnel independent of the area that created them. All models are
certified before they are used, and models are calibrated to ensure that
outputs reflect actual data and comparative market prices. To the
extent practical, models use only observable data, however areas such
as credit risk (both own and counterparty), volatilities and correlations
require management to make estimates. Changes in assumptions
about these factors could affect reported fair value of financial
instruments.
(d) Impairment of available for-sale equity investments
The Bank determines that available-for-sale equity investments are
impaired when there has been a significant or prolonged decline in the
fair value below its cost. This determination of what is significant or
prolonged requires judgement. In making this judgement, the Bank
evaluates among other factors, the normal volatility in price. In
addition, impairment may be appropriate when there is evidence of
deterioration in the financial health of the investee, industry and sector
performance, changes in technology, and operational and financing
cash flows.
investments would therefore be measured at fair value not amortised
cost. If the entire class of held-to-maturity investments were tainted,
the fair value would decrease by UShs nil (2013: Nil), with a
corresponding entry in the available-for-sale reserve in shareholders’
equity
5 Segment information
The principal business units in the Bank are as follows: Personal and
Business banking (PBB): Banking and other financial services to
individual customers and small to medium sized enterprises throughout
Uganda.
PBB incorporates:
Mortgage lending- provides residential accommodation loans to
individual customers. Instalment sales and finance leases: comprises two main areas instalment finance in the consumer market mainly vehicles and
secondly, finance of vehicles and equipment in the business
market. Transactional and lending products- Transactions in products
associated with the various points of contact channels such as
ATMs, internet, and branches. This includes deposit taking
activities, electronic banking, cheque accounts and other lending
products.
Had the declines of financial instruments with fair values below cost
been considered significant or prolonged, the Bank would suffer an
additional loss of UShs 3,351 million(2013: UShs 5,401 million) in its
financial statements, being the transfer of the negative revaluations
within available-for-sale reserve to the income statement.
Corporate and Investment Banking (CIB): Commercial and
investment banking services to larger corporates, financial
institutions, and international counterparties in Uganda.
(e) Held to maturity investments
CIB incorporates:
The Bank follows the guidance of IAS 39 on classifying non-derivative
financial assets with fixed or determinable payments and fixed maturing
as held-to-maturity. This classification requires significant judgement.
In making this judgement, the Bank evaluates its intention and ability
to hold such investments to maturity. If the Bank fails to keep these
investments to maturity other than for the specific circumstances – for
example, selling an insignificant amount close to maturity – it will be
required to classify the entire class as available-for-sale. The
Global markets - includes foreign exchange, fixed income,
derivatives, and money market funding units. Investment Banking and trade finance - includes corporate lending
and transactional banking businesses, trade finance business and
property related lending to corporates.
Treasury and Capital Management (TCM): Oversees the
management of liquidity, interest rate risk and surplus capital for
the bank.
91
31 December 2014
Notes
Notes
5. Segment information (Continued)
6 Interest income
The segment results for the years ended 31 December 2014and 31 December 2013 are as follows:
Personal and
Business Banking
Corporate and
Investment Banking
Treasury & Capital
management
Total
UShs’ 000
UShs’ 000
Shs’ 000
UShs’ 000
Operating income
280,787,454
200,224,395
13,215,031
494,226,880
Impairment losses
(39,509,452)
2,125,035
-
(37,384,417)
(205,978,615)
(69,575,922)
-
(275,554,537)
35,299,387
132,773,508
13,215,031
181,287,926
(11,515,265)
(32,991,492)
(1,701,787)
(46,208,544)
23,784,122
99,782,016
11,513,244
135,079,382
258,637,933
170,483,140
17,883,863
447,004,936
Income statement
Year ended 31 December 2014
Income tax expense
Profit after tax
Year ended 31 December 2013
Operating income
Impairment losses
(45,177,820)
245,543
-
(44,932,277)
(198,972,207)
(68,289,691)
-
(267,261,898)
14,487,906
102,438,992
17,883,841
134,810,761
Income tax expense
(4,023,267)
(24,164,199)
(4,771,768)
(32,959,234)
Profit after tax
10,464,639
78,274,793
13,112,073
101,851,527
Personal and
Business Banking
Corporate and
Investment Banking
Treasury & Capital
management
Total
UShs’ 000
UShs’ 000
Shs’ 000
UShs’ 000
Total assets
1,310,277,914
2,014,278,946
183,205,155
3,507,762,015
Total liabilities
1,152,564,306
1,853,119,208
15,108,967
3,020,792,481
157,713,608
161,159,738
168,096,188
486,969,534
Equity
Other segment items included
in the income statement
Depreciation
Amortisation of intangible assets
Total assets
13,099,188
1,791,887
-
14,891,075
440,040
151,935
-
591,975
1,024,602,170
2,000,454,702
216,541,168
3,241,598,040
Total liabilities
917,028,945
1,889,141,380
30,119,218
2,836,289,543
Equity
107,573,225
111,313,322
186,421,950
405,308,497
Other segment items included
in the income statement
Depreciation
Amortisation of intangible assets
12,452,345
1,785,182
-
14,237,527
437,023
152,741
-
589,764
All of the business is carried out in Uganda. There is therefore no secondary (geographical) segment reporting.
Government securities
Placements with group companies
2014
UShs’ 000
73,072,684
238,740,051
895,789
857,759
2013
UShs’ 000
54,263,742
226,803,739
2,454,412
1,463,902
313,566,283
284,985,795
Interest income above includes the unwinding effect of the net fee and commissions income included in determining the effective interest rate on
financial assets measured at amortised cost of UShs 8,415 million (2013: Ushs 5,777 million).
7 Interest expense
Current accounts
Savings and deposit accounts
Subordinated debt: - Group entity
- Non-group entities
Deposits and borrowings from banks
Interest paid on other money market borrowings
2014
UShs’ 000
4,847,528
9,041,809
546,093
3,472,471
1,299,740
13,904,379
259,574
2013
UShs’ 000
5,092,386
11,865,175
745,472
4,353,951
3,418,519
11,733,249
19,455
33,371,594
37,228,207
8 Net fee and commission income
Fee and commission income
Transactional fees & commission income
Credit related fees & commission income
Fee and commission expense
Transactional fees & commission expenses
Net fee and commission income
2014
2013
UShs’ 000
109,169,171
1,168,735
110,337,906
UShs’ 000
101,762,380
208,792
101,971,172
(3,353,123)
98,618,049
(1,762,480)
108,575,426
Net fee and commission income above excludes amounts included in determining the effective interest rate on financial assets measured at amortised
cost of UShs 6,497million (2013: Ushs 5,761 million).
9 Net trading income
Foreign exchange trading gains - Realized gains
Foreign exchange trading gains - Unrealized gains
Debt securities trading gains
Fair value through P&L
Trading expense - Other
2014
UShs’ 000
65,536,888
(11,063,915)
50,413,317
(185,158)
(203,860)
104,497,272
2013
UShs’ 000
72,168,759
(3,048,385)
20,606,514
9,456,323
99,183,211
Debt securities include the effect of buying and selling and changes in the fair value of government securities. Included in foreign exchange trading
are gains and losses from spot and forward contracts and other currency derivatives.
92
31 December 2014
93
31 December 2014
Notes
Notes
10 Other operating income
14 Income tax expense
Gain on disposal of property and equipment
Dividend income
Other
2014
UShs’ 000
21,210
942,530
2013
UShs’ 000
156,024
1,446,088
963,740
1,602,112
2014
UShs’ 000
52,034,056
(14,649,639)
2013
UShs’ 000
62,219,148
(17,286,871)
37,384,417
44,932,277
2014
UShs’ 000
98,788,034
13,086,756
7,648,827
2013
UShs’ 000
87,229,921
11,673,176
6,064,110
119,523,617
104,967,207
Current income tax
Deferred income tax (see note 22)
2014
UShs’ 000
46,081,870
126,674
2013
UShs’ 000
32,515,829
443,405
46,208,544
32,959,234
The income tax on the company’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate
as follows:
11 Impairment charge for credit losses
Net credit impairment raised and reversed for loans and advances (Note 20)
Recoveries on loans and advances previously written off
12 Employee benefit expenses
Salaries and wages
Contributions to statutory and other defined benefit plans
Other
13 Other operating expenses
Premises costs
Office expenses
Auditors remuneration
Professional fees
IT expenses
Travel and entertainment
Marketing and advertising
Insurance
Deposit Protection Scheme Contribution
Security expenses
Franchise fees
Directors fees & expenses
Training costs
Operational losses
Indirect taxes (VAT)
Bank charges
Leased equipment rental
Credit Bureau expenses
94
31 December 2014
2014
UShs’ 000
22,039,726
8,526,636
464,493
67,225
35,762,602
6,783,517
6,721,229
1,749,826
3,650,016
8,397,443
15,456,608
553,692
1,901,164
1,406,508
12,413,882
1,313,701
374,471
864,939
12,104,438
2013
UShs’ 000
22,545,694
12,864,858
623,491
70,673
35,756,563
8,388,038
4,923,753
1,587,570
4,034,433
9,403,726
13,233,426
477,173
3,783,818
6,352,213
10,946,229
1,996,939
170,902
745,349
9,718,576
140,552,116
147,623,424
Tax calculated at statutory tax rate of 30% (2013: 30%)
Tax effects of:
Income not subject to tax
Income subject to tax at 20%
Expenses not deductible for tax purposes
Prior year current income tax under provision
2014
UShs’ 000
181,287,929
54,386,379
(205,030)
(11,630,835)
3,055,061
602,969
2013
UShs’ 000
134,810,761
40,443,228
(455,438)
(8,658,812)
1,630,256
-
46,208,544
32,959,234
At start of year
Prior year under provision for current income tax
Income tax charge
Tax paid
2014
UShs’ 000
(10,708,472)
602,969
45,478,901
(47,432,090)
2013
UShs’ 000
(7,454,070)
32,515,829
(35,770,231)
At end of year
(12,058,692)
(10,708,472)
The movement in the current income tax recoverable is as follows:
15 Earnings per share – basic and diluted
Basic
Profit attributable to ordinary shareholders (UShs’000)
Weighted average number of ordinary shares in issue (thousands)
Basic earnings per share (expressed in Shs per share)
2014
2013
135,079,382
51,188,670
101,851,527
51,188,670
2.64
1.99
There were no potentially dilutive shares as at 31 December 2014 or on 31 December 2013. Therefore, diluted earnings per share are the same
as basic earnings per share.
16 Cash and balances with Bank of Uganda
Coins & bank notes
Balances with Bank of Uganda
2014
UShs’ 000
235,953,293
447,077,843
2013
UShs’ 000
192,053,745
229,327,587
683,031,136
421,381,332
Banks are required to maintain a prescribed minimum cash balance with Bank of Uganda that is not available to finance the Bank’s day-to-today
activities. The amount is determined by Bank of Uganda on a pre-set formula on a rolling fortnightly basis; 8% in 2014 (2013: 8%). The reserve
as at 31 December 2014 is UShs 176,130m (2013: UShs 149,670m). The reserve is available for use in the bank’s day to day activities and may
fall by upto 50% on a given day, however, there are sanctions for non compliance.
95
31 December 2014
Notes
Notes
17 Government securities
19
2014
UShs’ 000
Treasury bills
At start of the year
Additions
Disposals
MTM adjustments
At end of the year
Treasury bonds
Additions
Disposals
MTM adjustments
At end of the year
Total at end of year
Treasury bills
Additions
Disposals
MTM adjustments
At end of the year
Treasury bonds
Additions
Disposals
MTM adjustments
At end of the year
Total for the year
2013
UShs’ 000
2014 UShs’ 000 699,053 163,179,147 103,521,403 7,159,530
29,549,990
144,415,333
267,399,603 181,124,853
2014 UShs’ 000 2013
UShs’ 000
112,166,707
140,629,645
651,990,115
904,786,467 181,911,796
93,657,906
570,115,346
845,685,048
763,372,151
631,905,826
Gross loans and advances
Less: provision for impairment
1,668,158,618
(49,778,963)
1,477,590,874
(62,549,949)
Net loans and advances to customers
1,618,379,655
1,415,040,925
228,574,647
95,378,284
(228,574,647)
(248,987)
95,129,296
389,494,443
102,953,625
(76,645,824)
5,613,268
421,415,512
516,544,808
243,848,756
288,184,863
(304,860,368)
1,401,396
228,574,647
205,558,559
369,243,391
(188,422,943)
3,115,436
389,494,443
618,069,090
281,142,694
244,764,055
(284,353,362)
523,680
242,077,067
208,465,169
405,017,417
(332,034,188)
(305,704)
281,142,694
59,078,600
15,232,192
(59,207,824)
341,900
15,444,868
257,521,935
Items in course of collection - foreign banks
Placements with local banks
Placements with foreign banks
2013
UShs’ 000
The weighted average effective interest rate on loans and advances to banks was 7.9% (2013: 3%)
20 Loans and advances to customers
Personal and business banking
Mortgage lending
Instalment sales and finance leases
Other loans and advances
Corporate lending
Included in other loans and advances is the fair value adjustment of loans advanced to staff at off market rates of 17,639m (2013: UShs 7,060m).
66,501,313
341,700,880
(349,250,405)
126,812
59,078,600
340,221,294
Government treasury bills are debt securities issued by Bank of Uganda for a term of three months, six months or one year. Government bonds
are debt instruments issued by Bank of Uganda for a term of either two, three, five or ten years.
Government securities are categorised as assets held to maturity which are carried at amortised cost, available for sale which are fair valued
through reserves and held for trading, which are fair valued through the income statement.
The weighted average effective interest rate on treasury bills and bonds, including pledged assets (see note 18) was 12.18% (2013:11.3%).
18
Pledged assets
Treasury bills
Additions
Disposals
At end of the year
2014
UShs’ 000
1,851,658
1,223,458
(1,851,658)
2013
UShs’ 000
2,651,551
1,851,658
(2,651,551)
1,223,458
1,851,658
These are securities pledged as collateral to the Bank of Uganda under the electronic clearing house rules and are separately classified as pledged
assets on the face of the statement of financial position. These have a market value at 31 December 2014 of UShs 1,223m (2013: UShs 1,851m).
96
31 December 2014
97
31 December 2014
Notes
Notes
20 Loans and advances to customers (continued)
20 Loans and advances to customers (continued)
Movements in provisions for impairment of loans and advances are as follows:
The loans and advances to customers include finance lease receivables as follows;
At 1 January 2014
Impaired accounts written off
Net provisions raised/(released)
Effects of foreign exchange
movements
At 31 December 2014
Performing loans
At 1 January 2014
Net impairments raised
At 31 December 2014
Total
At 1 January 2013
Impaired accounts written off
Net impairments raised &
released
Effects of foreign exchange
movements
At 31 December 2013
Performing loans
At 1 January 2013
Net impairments raised
At 31 December 2013
Total
Mortgage lending
Instalment sales
and finance leases
Other loans &
Advances
Corporate
lending
Total
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
Gross investment in finance leases
No later than 1 year
Later than 1 year but no later than 5 years
Later than 5 years
2014
UShs’ 000
2013
UShs’ 000
10,947,579
139,751,329
16,051,042
166,749,950
14,844,864
197,762,965
212,607,829
Unearned future finance income on finance leases
(26,120,555)
(38,461,280)
2,070,440
(1,970,121)
3,887,357
(10,261,139)
32,213,443
(49,378,227)
1,427,446
-
39,598,686
(61,609,487)
1,042,972
16,661,562
38,860,262
(822,498)
55,742,298
39,474
2
(3,235,041)
-
(3,195,565)
1,182,765
10,287,782
18,460,437
604,948
30,535,932
Net investment in finance leases
140,629,395
174,146,549
3,416,285
(825,158)
2,591,127
1,803,733
(1,063,377)
740,356
12,252,795
(517,168)
11,735,627
5,478,451
(1,302,537)
4,175,914
22,951,264
(3,708,240)
19,243,034
The net investment in finance leases may be analysed as follows:
No later than 1 year
Later than 1 year but no later than 5 years
Later than 5 years
10,260,153
116,677,864
13,691,378
14,016,990
160,129,559
-
3,773,892
11,028,138
30,196,064
4,780,862
49,778,966
140,629,395
174,146,549
5,003,484
(8,291,241)
8,806,757
(6,706,258)
31,800,451
(50,269,705)
125,448
(84,566)
45,736,140
(65,351,770)
4,482,758
1,794,947
53,240,945
1,036,046
60,554,696
875,439
(8,089)
(2,558,248)
350,518
(1,340,380)
2,070,440
3,887,357
32,213,443
1,427,446
39,598,686
2,666,449
749,836
3,416,285
1,607,779
195,954
1,803,733
11,239,571
1,013,223
12,252,794
6,760,040
(1,281,589)
5,478,451
22,273,839
677,424
22,951,263
5,486,725
5,691,090
44,466,237
6,905,897
62,549,949
All impaired loans have been written down to their estimated recoverable amount. The net carrying amount of impaired loans at 31 December
2014 was UShs 30,536 million (2013: UShs 39,598 million).
The weighted average effective interest rate on loans and advances was 14.46% (2013: 16.4%)
As at 31 December 2014, the Bank had no exposures to a single borrower or group of borrowers exceeding 25% of the Total capital of the Bank.
21
Other investments
S.W.I.F.T. SCRL
African Export and Import Bank (0.04% owned)
2014
UShs’ 000
55,590
1,088,789
2013
UShs’ 000
57,409
1,088,789
1,144,379
1,146,198
22 Deferred income tax
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority. Deferred income taxes are calculated on all temporary differences under the
balance sheet liability method using tax rates currently enacted. The movement on the deferred income tax account is as follows:
As at 1 January
Charge to income statement
Credit recognised in equity
2014
UShs’ 000
7,549,346
(126,674)
1,610,393
2013
UShs’ 000
8,871,029
(443,405)
(878,278)
As at 31 December
9,033,065
7,549,346
The deferred income tax asset on the statement of financial position comprises the following categories:
Deferred income tax assets
Provisions for loans and advances
Available for sale government securities
Other deductible temporary differences
Deferred income tax liabilities
Net deferred income tax asset
98
31 December 2014
99
31 December 2014
Notes
Notes
22 Deferred income tax (continued)
25 Goodwill and other intangible assets
The deferred tax charge in the income statement comprises the following categories:
Provisions for loans and advances
Other deductible temporary differences
2014
UShs’ 000
(218,440)
(616,449)
708,215
2013
UShs’ 000
291,520
1,033,582
(1,768,507)
(126,674)
(443,405)
23 Prepaid operating leases
Cost
As at 1 January
Additions for the year
As at 31 December
2014
UShs’ 000
2013
UShs’ 000
239,141
239,141
239,141
239,141
Amortisation
As at 1 January
Charge for the year
As at 31 December
Carrying value
(109,467)
(10,338)
(119,805)
(99,129)
(10,338)
(109,467)
As at 31 December
119,336
129,674
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. There was no
impairment of goodwill identified in 2014 (2013: nil).
Cost
At 1 January 2014
At 31 December 2014
Amortisation
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
Cost
At 1 January 2013
Additions
At 31 December 2013
Amortisation
At 1 January 2013
Charge for the year
At 31 December 2013
Computer software
UShs’ 000
Goodwill
UShs’ 000
Total
UShs’ 000
3,065,102
3,065,102
4,753,980
4,753,980
7,819,082
7,819,082
934,789
591,975
1,526,764
2,852,388
2,852,388
3,787,177
591,975
4,379,152
1,538,338
1,901,592
3,439,930
2,938,295
126,807
3,065,102
4,753,980
4,753,980
7,692,275
126,807
7,819,082
345,025
589,764
934,789
2,852,388
2,852,388
3,197,413
589,764
3,787,177
2,130,313
1,901,592
4,031,905
Net book value
At 31 December 2013
24 Other assets
Items in transit
Prepayments
Fees receivable
Other accounts receivable
100
31 December 2014
2014
UShs’ 000
9,636,111
22,515,109
602,070
22,085,486
2013
UShs’ 000
8,971,675
21,895,035
329,223
20,809,415
54,838,776
52,005,348
101
31 December 2014
Notes
Notes
26 Property and equipment
28 Available for sale revaluation reserve
Land and
buildings
UShs’ 000
Cost
At 1 January 2014
Additions
Transfers
Disposals
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
On disposals
At 31 December 2014
Net book value
Furniture,
fittings and
equipment
UShs’ 000
Computer
equipment
Motor
vehicles
Work in
progress
UShs’ 000
UShs’ 000
Total
2014
UShs’ 000
UShs’ 000
3,415,496
3,415,496
51,483,712
9,340,193
453,529
(3,909,208)
57,368,226
54,898,216
10,537,930
87,975
(6,569,875)
58,954,246
4,186,739
586,242
(1,153,364)
3,619,617
508,840
2,939,549
(541,504)
2,906,885
114,493,003
23,403,914
(11,632,447)
126,264,470
812,242
69,081
881,323
35,550,802
6,703,141
(3,521,064)
38,732,879
35,195,677
7,764,284
(6,367,736)
36,592,225
3,143,924
354,570
(1,145,682)
2,352,812
-
74,702,645
14,891,076
(11,034,482)
78,559,239
At 31 December 2014
2,534,173
18,635,347
22,362,021
1,266,805
2,906,885
47,705,231
Cost
At 1 January 2013
Additions
Disposals
3,432,496
(17,000)
47,463,438
4,710,842
(690,568)
50,140,502
6,994,879
(2,237,165)
3,771,062
1,068,883
(653,206)
508,840
-
104,807,498
13,283,444
(3,597,939)
At 31 December 2013
Depreciation
At 1 January 2013
Charge for the year
On disposals
At 31 December 2013
Net book value
3,415,496
746,900
69,280
(3,938)
812,242
51,483,712
29,498,562
6,629,656
(577,416)
35,550,802
54,898,216
30,270,671
7,089,993
(2,164,987)
35,195,677
4,186,739
3,345,606
448,598
(650,280)
3,143,924
508,840
-
114,493,003
63,861,739
14,237,527
(3,396,621)
74,702,645
At 31 December 2013
2,603,254
15,932,910
19,702,539
1,042,815
508,840
39,790,358
2013
UShs’ 000
UShs’ 000
At 1 January
(3,351,374)
(5,400,689)
Net gains/(losses) from changes in fair value
(5,367,978)
2,927,593
Deferred tax on fair value change
1,610,393
(878,278)
Net movement for the year
(3,757,585)
2,049,315
At 31 December
(7,108,959)
(3,351,374)
29 Statutory credit risk reserve
The statutory credit risk reserve represents amounts by which provisions for impairment of loans and advances, determined in accordance with
the Financial Institutions Act 2004 exceed those determined in accordance with International Financial Reporting Standards. These amounts are
appropriated from retained earnings in accordance with accounting policy (j).
Specific Provisions (Regulatory)
General Provisions (Regulatory)
Interest in suspense(regulatory)
Less
Identified impairment (in accordance with IFRS)
Unidentified impairment (in accordance with IFRS)
2014
UShs’ 000
31,618,077
20,073,067
1,677,816
53,368,960
2013
UShs’ 000
53,890,420
16,936,038
70,826,458
30,535,931
19,243,033
39,598,685
22,951,263
3,589,996
8,276,510
27 Share capital
Number of ordinary
shares
(thousands)
Total
UShs’ 000
UShs’ 000
Issued and fully paid
At 1 January 2014
51,188,670
51,188,670
51,188,670
At 31 December 2014
51,188,670
51,188,670
51,188,670
Number of ordinary
shares
Total
(thousands)
UShs’ 000
UShs’ 000
Issued and fully paid
At 1 January 2013
51,188,670
51,188,670
51,188,670
At 31 December 2013
51,188,670
51,188,670
51,188,670
102
31 December 2014
103
31 December 2014
Notes
Notes
30 Derivatives
33 Borrowed funds
The Bank uses currency forward derivative instruments for non-hedging purposes. Currency forwards represent commitments to purchase foreign
and domestic currency, including undelivered spot transactions. The notional amounts of certain types of financial instrument provide a basis for
comparison with instruments recognised on the statement of financial position but do not necessarily indicate the amounts of future cash flows
involved or the current fair value of the instruments and, therefore, do not indicate the bank’s exposure to credit or price risks. The derivative
instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market foreign exchange rates on hand relative
to their terms. The aggregate contractual or notional amount of derivative financial instruments, the extent to which instruments are favourable or
unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time. The maturity
analysis of the fair values of derivative instruments held is set out below.
Assets
Derivatives held for trading
Currency forwards
Fair value of assets
Liabilities
Currency forwards
Fair value of liabilities
Net fair value
Assets
Currency forwards
Fair value of assets
Liabilities
Currency forwards
Fair value of liabilities
Net fair value
Less than 1 year
1-5 years
Over 5 years
Total
UShs’ 000
UShs’ 000
UShs’ 000
UShs’ 000
479,113
2,587,135
3,066,248
323,916
323,916
-
479,113
2,911,051
3,390,164
46,846
19,894
66,740
-
-
46,846
19,894
66,740
2,999,508
323,916
-
3,323,424
129,020
129,020
-
-
129,020
129,020
1,521,864
1,521,864
-
-
1,521,864
1,521,864
(1,392,844)
-
-
(1,392,844)
31 Customer deposits
Current and demand deposits
Savings accounts
Fixed and call deposit accounts
2014
UShs’ 000
1,793,240,965
185,589,506
153,525,569
2013
UShs’ 000
1,502,372,418
179,028,617
106,176,678
2,132,356,040
1,787,577,713
The weighted average effective interest rate on customer deposits was 1.09% (2013: 0.9%).
2014
UShs’ 000
70,661,068
91,942,841
2013
UShs’ 000
127,716,604
110,755,761
162,603,909
238,472,365
The weighted average effective interest rate on deposits and balances due to banks was 2.27% (2013: 2.8%).
104
2013
UShs’ 000
6,663,348
12,177,607
14,067,737
18,840,955
The Bank entered into a financing agreement with Agence Française de Développement (AFD). Under the terms of the agreement, AFD lent the
Bank EUR 7 million over a period of seven years at a fixed rate of 0.6%. Interest is paid semi-annually with 12 equal principal re-payments beginning
in January 2011. The outstanding balance as at 31 December 2014 was UShs 7,861 million (2013: UShs 12,177 million).
The Bank complied with all the terms and conditions of each of the agreements during the year.
34 Other liabilities
Uganda Revenue Authority - Tax revenue collections
Bills payable
Unclaimed balances
Sundry creditors
Unearned fees & commission income
Dividend payable
Other liabilities
2014
UShs’ 000
4,181,045
31,529,875
20,777,414
33,633,907
6,497,082
5,897,438
13,789,849
2013
UShs’ 000
3,796,707
48,308,777
17,164,189
10,372,365
5,761,092
5,823,466
12,351,634
116,306,610
103,578,230
35 Subordinated debt
Bonds
Subordinated loan facility - Standard Bank South Africa
Date of issue
Carrying value
UShs’ 000
Notional value
UShs’ 000
31 October 2011
19,544,199
19,544,199
19,544,199
19,544,199
10 August 2009
10 August 2009
28,195,000
1,805,000
28,195,000
1,805,000
31 October 2011
30,000,000
17,811,668
30,000,000
17,811,668
47,811,668
47,811,668
Floating rate notes
Fixed rate notes
The Bank issued subordinated floating and fixed rate notes in August
2009 of an aggregate nominal amount of UShs 30 billion. The
Subordinated Notes constituted direct, unconditional, unsecured and
subordinated obligations of the issuer which (a) rank pari passu among
themselves and (b) are subordinated to the claims of all senior creditors
and were redeemable on 10 August 2016.
The Notes were issued (in two tranches) with a provision to early redeem
after a period of 5 years and 1 day from the issue date.
These tier II notes were initially sourced to supplement our capital and
diversify our funding sources. With only two years to mature the capital
contribution from the notes was significantly reduced. At the time
31 December 2014
2014
UShs’ 000
6,206,570
7,861,167
The Government of Uganda through Bank of Uganda set up an Agricultural Credit Facility scheme for the purpose of supporting agricultural expansion
and modernization in partnership with commercial banks. All eligible bank customers receive 50% financing from the Government of Uganda while
the remaining 50% is provided by the Bank. The outstanding balance as at 31 December 2014 was UShs 6,207 million (2013: UShs 6,663 million).
The Bank does not pay any interest to the Government of Uganda. Refunds to the government are made half yearly and as at 31 December 2014;
the last payable instalment will be due on 31 December 2018.
Subordinated loan facility - Standard Bank South Africa
32 Deposits and balances due to banks
Balances due to other banks - local currency
Balances due to other banks - foreign currency
Bank of Uganda : Agricultural Credit Facility
Agence Francaise de Developpement (AFD)
of redemption the banks total adequacy ratio was about 21.5% and
management did not therefore envisage any capital adequacy problems
with the repayment of these borrowings. The total redemption was
completed in September 2014.
On 31 October 2011, the bank entered into an agreement with Standard
Bank of South Africa Limited (SBSA), under which SBSA undertook
to lend the bank US$ 7 million (the loan). The loan is unsecured and
subordinated to the claims of all senior creditors.
The loan is for a period of up to 10 years but with a first redemption
date of 31 October 2016.
105
31 December 2014
Notes
Notes
35 Subordinated debt (Continued)
The interest rate applicable on the loan is variable and is priced at 3 months LIBOR (London interbank offer rate for 3 months US$ deposits) plus a
margin of 3.76% per annum. After the first redemption date, the margin increases to 5.025% per annum until termination.
38 Analysis of cash and cash equivalents as shown in the statement of cash flows
The Bank complied with all the terms and conditions of each of the agreements during the year.
36 Dividends
At the annual general meeting to be held in May 2015, a dividend of UShs 1.66 per share amounting to UShs 85 billion in total is to be proposed.
(2013: total dividend per share of UShs 0.977 amounting to UShs 50 billion). The payment of dividends is subject to withholding tax at rates
depending on the tax status or residence of the recipient.
37Off balance sheet financial instruments, contingent liabilities and commitments
In common with other banks, the Bank conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities.
The majority of these facilities are offset by corresponding obligations of third parties. In addition, there are other off-balance sheet financial
instruments including forward contracts for the purchase and sale of foreign currencies, the nominal amounts for which are not reflected in the
statement of financial position.
2014
UShs’ 000
2013
UShs’ 000
121,331,423
251,112,562
372,443,985
80,577,515
177,277,890
257,855,405
Currency forwards
280,881,937
(79,990,813)
26,028,725
226,919,849
261,276,846
(57,595,294)
14,202,505
217,884,057
599,363,834
475,739,462
Contingent liabilities
Acceptances and letters of credit
Guarantees and performance bonds
Commitments
Nature of contingent liabilities
An acceptance is an undertaking by a bank to pay a bill of exchange drawn
on a customer. The Bank expects most acceptances to be presented, and
reimbursement by the customer is normally immediate. Letters of credit
commit the Bank to make payments to third parties, on production of
documents, which are subsequently reimbursed by customers.
Guarantees are generally written by a bank to support performance by a
customer to third parties. The Bank will only be required to meet these
obligations in the event of the customer’s default.
Commitments to lend are agreements to lend to a customer in future
subject to certain conditions. Such commitments are normally made for
a fixed period. The Bank may withdraw from its contractual obligation
for the undrawn portion of agreed overdraft limits by giving reasonable
notice to the customer.
Foreign exchange forward contracts are agreements to buy or sell a
specified quantity of foreign currency, usually on a specified future date
at an agreed rate.
106
31 December 2014
Cash reserve requirement
Government securities maturing within 90 days
Placements with other banks
Deposits from group companies
Pending litigation
The Bank is a litigant in several other cases which arise from normal day
to day banking. The directors and management believe the Bank has
strong grounds for success in a majority of the cases and are confident
that they should get a ruling in their favour and none of the cases
individually or in aggregate would have a significant impact on the
Bank’s operations.
The directors have carried out an assessment of all the cases outstanding
as at 31 December 2014 and where considered necessary based on the
merits of each case, a provision has been raised. In aggregate the total
provisions raised amount to UShs 6.4 billion (2013: UShs 5.9 billion).
Outstanding tax matters
Included in the operating expenses are various fees payable to
Standard Bank South Africa, a related party, mostly comprising of
license fees relating to the Finacle core banking system that the
bank uses. The right to use the Finacle software was obtained under
an affiliate software licensing agreement signed with Standard
Bank South Africa. As part of the process to ensure that the bank is
compliant with the transfer pricing regulations, a request was made
to the Uganda Revenue Authority (URA) to confirm that Finacle
license fees payable to Standard Bank South Africa are consistent with
the arm’s length principle. As at 31 December 2014 URA had not
expressed an opinion to confirm this position.
2014
UShs’ 000
683,031,136
(176,130,000)
45,117,165
267,399,603
31,931,847
2013
UShs’ 000
421,381,332
(149,670,000)
159,713,219
181,124,853
148,418,567
851,349,751
760,967,971
For the purposes of the statement of cash flow, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition
including: cash and balances with central banks, treasury bills and other eligible bills, and amounts due from other banks. Cash and cash equivalents
exclude the cash reserve requirement held with the Bank of Uganda. (See Note 17).
39 Related parties
The Bank is 80% owned by Stanbic Africa Holdings Limited, which is incorporated in the United Kingdom. The ultimate parent and controlling party of
the Bank is Standard Bank Group Limited, incorporated in South Africa. There are other companies which are related to Stanbic Bank Uganda Limited
through common shareholdings or common directorships. These include Standard Bank London, Standard Bank Isle of Man Limited, Standard Bank of
South Africa, CfC Stanbic Bank Kenya Limited, Stanbic Bank Tanzania Limited, Stanbic Bank Botswana, Stanbic International Uganda Limited, StanLib,
Stanbic International Insurance Limited and Liberty Life Assurance Uganda Limited.
In the normal course of business, current accounts are operated and placings of foreign currencies are made with the parent company and other group
companies at interest rates in line with the market.
The relevant balances are shown below:
Placements and borrowings
Other assets
Derivatives
2014
UShs’ 000
2013
UShs’ 000
25,763,152
2,003,192
4,165,503
145,662,251
2,233,981
522,335
31,931,847
148,418,567
Deposits and current accounts
Derivatives
Other liabilities
536,382,550
914,070
38,550,626
605,334,136
33,152,612
575,847,246
638,486,748
Subordinated debt due to group companies
Subordinated loans (see note 35)
Interest income earned
Interest expense paid
Trading income
Operating expenses incurred
19,544,199
857,759
14,450,472
6,181,420
36,883,919
17,811,668
1,463,902
12,478,721
728,186
37,918,450
Advances to customers at 31 December 2014 include loans to directors and loans to employees as follows:
As at 1 January
Loans extended during the year
Loan repayments during the year
2014
UShs’ 000
4,110,246
253,131
(299,619)
2013
UShs’ 000
3,626,010
630,844
(146,608)
4,063,758
4,110,246
107
31 December 2014
Notes
Notes
39
40 Equity linked transactions (Continued)
Related parties (Continued)
Companies affiliated to directors and key management are Batteries Limited, Nice House of Plastics, Jesa Farm Dairy Limited, Victoria Seeds Limited
and Impala Heights Ltd.
At 31 December 2014 advances to key management amounted to UShs 552million (2013: UShs 928 million).
Loans granted to non-executive directors and their affiliates are granted at commercial rates while those granted to executive directors and executives
are: Mortgage – 50% of prime rate, staff miscellaneous and car loans – 75% of prime rate, study loans – 0%.
A reconciliation of the movement of share options and appreciation rights is detailed below:
2014
UShs’ 000
2013
UShs’ 000
Interest income from key management loans
109,626
79,219
109,626
79,219
Group Share Incentive Scheme
Option price range (ZAR)
31-Dec-14
Number of options
31-Dec-14
31-Dec-13
183 700
248 850
62,39 - 111,94
(18 000)
(12 500)
111,94
(5 500)
(29 850)
62,39 - 111,94
(34 987)
(22 800)
125 213
183 700
Options outstanding at beginning of the period
Transfers
Lapsed
Exercised
Options outstanding at end of the period
No impairment has been recognised in respect of loans advanced to related parties (2013: nil).
The weighted average SBG share price for the period to 31 December 2014 year end was ZAR135,92 (2013: ZAR115,39).
Other related party transactions
The following options granted to employees had not been exercised at 31 December 2014:
Deposits by key management and related parties
As at 1 January
Net increase for the year
2014
UShs’ 000
2013
UShs’ 000
Key management compensation
Salaries and other short term employment benefits
Post employment benefits
Weighted average price
Option expiry period
(ZAR)
98
Year to 31 December 2017
812,995
177,257
436,287
376,708
400
7 575
92
92
990,252
812,995
17 600
62.4
62.4
66 638
112
112
33 000
98.8
98.8
11,268,807
2,213,579
11,058,315
1,372,067
13,482,386
554,914
4,544,475
12,430,382
500,084
4,827,970
5,099,389
5,328,054
40 Equity linked transactions
Standard Bank Group (SBG) has two equity-settled schemes, namely the Group Share Incentive Scheme and the Equity Growth Scheme. The Group
Share Incentive Scheme confers rights to employees to acquire ordinary shares at the value of the SBG share price at the date the option is granted.
The Equity Growth scheme was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is
effectively settled by the issue of shares equivalent in value to the value of the rights.
The amounts reflected in the income statement for the two schemes are:
Share options
Group Share Incentive Scheme
Equity Growth Scheme
Option price range
98
Directors remuneration
Directors fees
Other emoluments included in management compensation
Number of ordinary shares (ZAR)
2014
UShs’ 000
330 585
18 729
349 314
2013
UShs’ 000
348 311
18 028
366 339
125 213
The following options granted to employees had not been exercised at 31 December 2013:
Number of ordinary shares (rands)
Option price range
Weighted average price
(rands)
Option expiry period
500
65,60
65,60
3 500
98,00
98,00
19 800
92,00
92,00
28 700
62,39
62,39
69 950
111,94
111,94
61 250
98,80
98,80
183 700
41 Subsequent events
There was no significant event to report.
Share-based payment
Equity compensation plans
The two schemes have five different sub-types of vesting categories as illustrated by the table below:
Year
% vesting
Expiry
Type A
3, 4, 5
50, 75, 100
10 Years
Type B
5, 6, 7
50, 75, 100
10 Years
Type C
2, 3, 4
50, 75, 100
10 Years
Type D
2, 3, 4
33, 67, 100
10 Years
3, 4, 5
33, 67, 100
10 Years
Type E
108
31 December 2014
109
31 December 2014
Shareholder Analysis
Shareholder Information
Top ten shareholders as at 31 December 2014
Chairman’s letter to shareholders
Name
Number of shares
Percentage shareholding
STANBIC AFRICA HOLDINGS LIMITED
40,950,935,760
80,00%
NATIONAL SOCIAL SECURITY FUND
1,048,135,396
2,05%
BBH-GENESIS EMERGING MARKETS OPPORTUNITIES FUND
516,182,373
1,01%
MR. SUDHIR RUPARELIA
330,723,247
0,65%
BBH-GENESIS EMERGING MARKETS OPPORTUNITY FUND LTD
236,684,550
0,46%
CENTRAL BANK OF KENYA PENSION FUND
230,615,680
0,45%
MR IBULAIMU KIRONDE KABANDA 256
202,691,120
0,40%
POHJOLA BANK PLC
189,825,000
0,37%
SCB MAURITIUS RE AFRICA OPPORTUNITY FUND L P
177,035,885
0,35%
CRANE BANK LIMITED
152,503,325
0,30%
Dear shareholder
I extend an invitation to you to attend the annual general meeting (AGM) of Stanbic Bank Uganda Limited to be held at .................................... on 5 May 2015 at
11h00.
This is your opportunity to meet and question members of the Stanbic Bank Uganda Limited board regarding the company’s performance for the year ended 31
December 2014.
If you are not able to attend the AGM, I would urge you to complete and submit the proxy form in accordance with the instructions and return it to the address
indicated.
I also urge shareholders who have not yet opened securities accounts with the Securities Central Depository (SCD) for the deposit and safe keeping of their shares
to do so. Only shareholders who have immobilised their shares in the SCD can trade them.
Explanatory note on resolutions to be tabled at the AGM
Explanatory note on resolutions to be tabled at the AGM
The AGM will deal with the following ordinary business:
Key Shareholder information
Stanbic Uganda is majority-owned by Stanbic Africa Holdings Limited (SAHL), which is a private limited liability company incorporated in the United
Kingdom. SAHL is, in turn, wholly-owned by Standard Bank Group and is the vehicle through which Standard Bank Group holds its interests in several
banks in African countries.
Standard Bank Group is a public limited liability company incorporated in South Africa and is listed on the JSE. It is the largest South African banking
group by market capitalisation and by assets and earnings. Standard Bank Group had total assets of over ZAR 1,694 billion (approximately USD 162
billion) at 31 December 2014. The headline earnings are ZAR 17,294 million ( USD 1.8 billion), the market capitalisation is ZAR 209.4 billion (USD
20 billion) and employs more than 49,000 people worldwide. The tier 1 capital adequacy ratio is 12.9%.
• to receive the annual financial statements for the year ended 31 December 2014 as required in terms of the Companies Act;
to declare a dividend;
• to confirm the appointment of external auditors of the Company for 2015;
to confirm the appointment of a new director and elect directors in place of those retiring in accordance with the provisions of the Company’s articles of association. Mr. Japheth Buleetwa Katto is required to be confirmed following his appointment as Chairman of the Board. Ms. Barbara Mulwana and Dr. Samuel
Sejjaaka retire by rotation. All being eligible offer themselves for re-election. Their abridged curriculum vitae have been included in the notice.
• in line with the Company’s articles of association, you will be requested to approve the non-executive directors’ fees in respect of 2015, which have been
considered by the Board Compensation Committee and recommended by the Board.
I look forward to meeting you at the AGM.
Standard Bank Group, which was founded in 1896 in South Africa, trades as Standard Bank in South Africa, Namibia, Mauritius, Mozambique and
Swaziland and as Stanbic Bank throughout the remainder of the African continent. It has wide representation, which spans 20 African countries and
owns a controlling stake in the South African listed insurance company and Liberty Holdings Limited. While its principal activities are banking and
related financial services, Standard Bank Group has diversified its operations to meet the demands of the fast changing and demanding business
world, with investments in insurance, wealth management and investment management. It provides a wide range of banking and related financial
services.
___________________________________
Japheth Katto
Chairman, Board of Directors
110
31 December 2014
111
31 December 2014
Notes
Notice to members
Notice is hereby given that the annual general meeting (AGM) of Stanbic Bank Uganda Limited will be held at
………………………………………………………….. on 5th May 2015 at 11h00 for the following business:
1
Details of directors
Directors’ details as required by the Listing Rules of the Uganda Securities Exchange Limited (“the Listing Rules’) are set out on page 42 of
the annual report that accompanies this notice of annual general meeting (“the Annual Report”).
2 Directors’ responsibility statement
Agenda
1. To receive the annual financial statement for the year ended 31 December 2015 including the reports of the directors and auditors.
2. To declare a dividend for the year 2014.
3. To confirm the appointment of external auditors for the Company for 2015.
4. To confirm the appointment of a new director and elect directors in place of those retiring in accordance with the provisions of the
Company’s articles of association.
Mr. Japheth Buleetwa Katto is required to be confirmed following his appointment as Chairman of the Board. Ms Barbara Mulwana and
Dr. Samuel Sejjaaka retire by rotation. All being eligible offer themselves for re-election.
5. To approve the proposed fees payable to the non-executive directors for 2015.
The directors, whose names are given on pages 42 of the Annual Report, collectively and individually accept full responsibility for the accuracy of the information given in the Annual Report and certify that to the best of their knowledge and belief there are no facts that have
been omitted which would make any statement in the Annual Report false or misleading, and that all reasonable enquiries to ascertain such
facts have been made and that the notice contains all information required by law and the Listing Rules.
3 Interests of directors
The interests of the directors in the share capital of the Company are set out on page 52 of the Annual Report.
4 Major shareholders
Details of major shareholders of the Company are set out on page 110 of the Annual Report.
• Chairman of Stanbic Bank Uganda Limited – UGX 115,216,200 per annum
5 Share capital of the Company
• Director of Stanbic Bank Uganda Limited – UGX 40,492,650 per annum
• Board audit committee
- chairman – sitting allowance of – UGX 28,386,600 per annum
- member – sitting allowance of – UGX 14,610,600 per annum
6 Material change
• Board compensation committee
- chairman – sitting allowance of – UGX 6 528 918 per annum
- member – sitting allowance of – UGX 5 376 750 per annum
• Board risk management committee
- chairman – sitting allowance of – UGX 17 794 260 per annum
• Board credit committee
- chairman – sitting allowance of – UGX 13,057,836 per annum
• Fee for engagement on Bank business outside board – UGX 611,160 per event subject to approval of the board chairman.
The reason for this resolution is to grant the company the authority to pay fees to its directors for their services as directors. The proposed fees will be effective from 1 January 2015 and paid quarterly in arrears. In determining the proposed remuneration,
the board considered,
- the level, extend and nature of the non-executive directors’ legal and regulatory oversight responsibilities;
- the time demanded of non-executive directors in attending to Company matters;
- the level of risk assumed by the non-executive directors in performing their duties;
- changes in the cost of living as a result of inflation; and
- reviews of comparative remuneration offered by other major Ugandan and international banks.
Details of the share capital of the Company are set out on pages 52 of the Annual Report.
There has been no material change in the financial or trading position of the Company and its subsidiaries since the date of publication of the
Company’s annual results on 27 March, 2015.
Stanbic Bank Uganda Limited shareholders may attend, speak and vote at the annual general meeting or may appoint one or more proxies (who
need not be shareholders of the Company) to attend, speak and vote at the annual general meeting on behalf of such shareholder. A proxy form
is attached to this notice of annual general meeting. Duly completed proxy forms must be returned to the share registrars of the Company or the
registered office of the Company at the addresses set out below, to be received by not later than 17h00 on Thursday 30th of April 2015.
___________________________
On behalf of the board
Brendah Nabatanzi Mpanga
Company Secretary
17 April 2015
Registered office
Crested Towers, Short Tower
17 Hannington Road
Kampala, Uganda
PO Box 7131
Kampala, Uganda
Fax: +256 41 4230608 636 4207
Share registrars
Deloitte (Uganda) Ltd
3rd Floor, Rwenzori House,
1 Lumumba Avenue, Kampala
P O Box 10314
Kampala, Uganda
Telephone: +256 414 343850
Fax: +256 414 343887
112
31 December 2014
Bond registrars
Stanbic Bank Uganda Limited
17 Hannington Road
Kampala, Uganda
PO Box 7131
Kampala, Uganda
Fax: +256 41 4230608 /636 4207
113
31 December 2014
Notes
Proxy form
A shareholder entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend,
speak and vote in his/her stead. A proxy need not be a member of the Company.
1 A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space provided. The person whose
name stands first on the proxy form and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those
whose names follow.
I/We _____________________________________________________________ (Name in block letters)
of ______________________________________________________________(Address in block letters)
being a shareholder(s) and the holder(s) of _________ ordinary shares of UShs. 1 each and entitled to vote hereby appoint
1 _____________________________________________________________________or, failing him/her
2 _____________________________________________________________________or, failing him/her
the Chairman of the annual general meeting,
as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting of shareholders to be held at ...............
................................................ in the morning, and at any adjournment thereof as follows:
Number of
votes for*
Number of votes
against*
Abstain*
Ordinary resolution to:
1. Receive the annual financial statements
2. Declare a dividend
3. Elect directors
3.1 Confirm appointment of Japheth B Katto
3.2 Samuel Sejjaaka
3.3 Barbara Mulwana
4. Approve the appointment of PricewaterhouseCoopers as auditors of the Company.
2 To be effective, completed proxy forms must be lodged by not later than Friday 2 May with either the share registrars or the registered office:
Registered address
17 Hannington Road
Kampala, Uganda
PO Box 7131
Kampala, Uganda
Fax: +256 41 4230608/ 636 4207
Share registrars
Deloitte (Uganda) Ltd
3rd Floor, Rwenzori House,
1 Lumumba Avenue, Kampala
P O Box 10314
Kampala, Uganda
Telephone: +256 414 343850
Fax: +256 414 343887
3 The completion and lodging of this form of proxy will not prevent the relevant shareholder from attending the annual general meeting and
speaking and voting in person at the annual general meeting instead of the proxy.
4 The Chairman of the annual general meeting may accept or reject any proxy form which is completed and/or received other than in compliance
with these notes.
5 The signatories must initial any alteration to this proxy form, other than the deletion of alternatives.
6 Documentary evidence establishing the authority of a person signing the proxy form in a representative capacity must be attached to this proxy
form unless previously recorded by the Company. In the case of a corporation, a resolution of the board or equivalent body shall be required.
5. Approve non-executive directors’ remuneration
7 Where there are joint holders of ordinary shares:
(a) any one holder may sign the proxy form; and
* Insert a cross or tick or number of votes. If no options are marked, the proxy can vote as he/she deems fit.
Signed at ____________________________on _________________________________________2015
(b) the vote of the senior shareholder (for that purpose seniority will be determined by the order in which the names of the shareholders who
tender a vote (whether in person or by proxy) appear in the Company’s register) will be accepted as to the exclusion of the vote(s) of the
other joint shareholders.
Assisted by (where applicable) (State capacity and full name) ___________________________________
Please provide contact details:
Tel: ( ) _________________________________________
Fax: ( ) _________________________________________
e-mail: _________________________________________
Please read the notes on the next page
114
31 December 2014
115
31 December 2014
Contact details
Chief Financial Officer
Victor Yeboah Manu
Tel: +25641 7154396
Company Secretary
Brendah Nabatanzi Mpanga
Tel: +25641 7154606
Investor Relations enquiries
Tel: +25641 7154337
116
31 December 2014
Stanbic Bank Uganda Branches Countrywide
E-MAIL
TELEPHONE
FAX
1
REGION
CENTRAL REGION
City
[email protected]
0414 255 527
0414 349 226
2
Corporate
[email protected]
0312 224 410
0414 231 918
3
Entebbe Main
[email protected]
0417 155 045
4
Forest Mall
[email protected]
0312 335 800
5
Garden City
[email protected]
0312 262 979/80
0312 262 975
6
Garden City, Executive Branch
0414 259 681
0414 230 447
7
Industrial Area
[email protected]
0312 335 538
8
IPS
[email protected]
0417 155 045
9
Kalangala
[email protected]
0392 733 102
0392 251 102
10
Katwe
[email protected]
0414 256 199
0414 253 922
11
Kiboga
[email protected]
0392 733 310/11
0392 251 230
12
Kikuubo
[email protected]
0414 251 805
13
Kireka
[email protected]
0414 286 829
14
Kyambogo
[email protected]
0312 335 130/1/2 0414 289 077
15
Kyotera
[email protected]
0392 222 203
0392 280 039
16
Lugazi
[email protected]
0414 448 263
0414 448 263
17
Lugogo
[email protected]
0414 223 672
0414 223 674
18
Luwero
[email protected]
0772 222 209
0414 610 066
19
Lyantonde
[email protected]
0392 700 514
0481 420 744
20
Makerere University
[email protected]
0414 532 960
0414 535 137
21
Masaka
[email protected]
0312 335 440
0481 4 21 481
22
Mityana
[email protected]
0417 515 222
23
Mpigi
[email protected]
0392 748 147
0414 710 239
24
Mubende
[email protected]
0464 444 054
0464 444 056
25
Mukono
[email protected]
0414 290 758
0414 290 757
26
Mulago
[email protected]
0414 543 232
27
Nakasero
[email protected]
0417 335 761
28
Nakawa
[email protected]
0414 505 556
0414 505 802
29
Nakivubo
[email protected]
0414 230 914
0414 253 920
30
Nateete
[email protected]
0312 225 780
31
Ntinda
[email protected]
0313 335 770
32
Wandegeya
[email protected]
0414 541 404
0414 532 973
33
William Street
[email protected]
0392 733 310/11
0392 251 230
34
EASTERN REGION
Busia
[email protected]
0454 443 251
0454 434 947
35
Iganga
[email protected]
0434 242 030
0392 250 921
36
Jinja
[email protected]
0434 120 421
0434 121 046
37
Kakira
[email protected]
0434 123 922/3
0434 123 923
38
Kamuli
[email protected]
0772 222 205
0414 222 946
0434 353 085
117
31 December 2014
REGION
E-MAIL
TELEPHONE
FAX
EASTERN REGION
39
Kapchorwa
[email protected]
0392 222 207
0454 451 018
40
Kumi
[email protected]
0454 471 020
0454 471 020
41
Mbale
[email protected]
0454 434 943
0454 433 196
42
Pallisa
[email protected]
0772 222 213
0454 475 005
43
Soroti
[email protected]
0454 461 033
0454 461 441
44
Tororo
[email protected]
0454 445 002
0454 445 062
WESTERN REGION
118
45
Buliisa
[email protected]
0392 700 618
0782 282 430
0702 282 430
46
Bundibugyo
[email protected]
0392 701 526
47
Bushenyi
[email protected]
0312 335 410
48
Fort Portal
[email protected]
0312 335 530
0483 422 295
49
Hoima
[email protected]
0312 335 570/2
50
Ibanda
[email protected]
0485 426 014
51
Ishaka
[email protected]
52
Kabale
53
Stanbic Bank Uganda Customer Service Points (CSPs)
4
5
6
7
8
REGION
WITHOUT AUTOBANK (ATM)
Magoba (opposite exit of Old Taxi Park)
Nagatule Plaza (opposite Shell, Ben Kiwanuka Street)
Shopper’s Stop Plaza (behind Shoprite, Ben Kiwanuka Street)
WITH AUTOBANK (ATM)
Abim
Bwera
Dokolo
Kaabong
Kagadi
9
Katakwi
1
2
3
E-MAIL
TELEPHONE
[email protected] 0417 155 002
[email protected]
0414 251 789
[email protected]
0312 266 918
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
0465 440 425
10 Kawempe
11 Kayunga
12 Kyenjojo
[email protected]
[email protected]
[email protected]
0312 335 400
0392 250 617
13 Mayuge
[email protected]
[email protected]
0312 335 480
0486 422 017
14 Sironko
[email protected]
Kabwohe
[email protected]
0392 700 926
0392 250 925
54
Kasese
[email protected]
0312 335 540
0483 444 943
55
Kigumba
[email protected]
0392 701 540
56
Kihihi
[email protected]
0392 733 101
0392 251 331
57
Kinyara
[email protected]
0392 701 539
0392 252 539
15 Wobulenzi
16 Yumbe
[email protected]
[email protected]
58
Kisoro
[email protected]
0392 222 206
0486 430 008
59
Masindi
[email protected]
0312 335 560/4
0465 420 043
60
Mbarara
[email protected]
0312 335 380
0485 421 353
61
Ntungamo
[email protected]
0485 424 010
0485 424 083
62
Rukungiri
[email protected]
0486 442 008
0486 442 600
63
NORTHERN REGION
Adjumani
[email protected]
0392 700 965
0392 250 965
64
Apac
[email protected]
0772 222 204
65
Arua
[email protected]
0312 335 620
66
Gulu
[email protected]
0471 432 001
67
Kitgum
[email protected]
0312 335 670
68
Koboko
[email protected]
0392 701 544/47
69
Kotido
[email protected]
0392 733 104
70
Lira
[email protected]
0312 335 610
0473 420 800
71
Moroto
[email protected]
0454 470 200
72
Moyo
[email protected]
0476 449 128
73
Nebbi
74
Pader
[email protected]
0392 225 901
75
Pakwach
[email protected]
0392 701 922
31 December 2014
0476 420 294
0392 733 104
0483 444 872
0473 420 800
0392 912 046
0392 700 852
0456 144 258
0454 461 033
0414 230 914
0414 290 758
0883 423 039
0434 242 030
0434 242 550
0352 280 132
0454 434 927
0454 434 946
0454 431 071
0772 222 209
0392 701 544
Our Customer Care
Centre is open
24 hours a day,
7 days a week.
0473 420 014
0392 250 341
0392 222 210
0772 280 068
[email protected]
0414 340 788 or 0417 154 910
0800 150150 or 0800 250250
119
31 December 2014
www.stanbicbank.co.ug
Walking the transformation journey with Uganda
Not surprisingly, Uganda qualifies as one of the durable African success
stories. We have walked this journey with Uganda, transforming lives by
providing capital to support economic growth and driving our citizenship
and sustainability agenda.
Uganda’s continued prosperity hinges on shifting the economy to a higher
productivity level and integrating all its regions and activities into the
development process. By continuing to provide sustainable financing
which is crucial for this journey, we are committed to remaining central
partners in transforming lives for a better Uganda.

Annual report 2014 - Stanbic Bank Uganda

Transcription

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